Uncertainty Hovers Over Australia’s Economic Outlook Despite Impressive Recovery: Report

People wearing face masks walk on a street in the central business district of Sydney in Australia, on June 25, 2021. Saeed Khan/AFP via Getty Images

The pace of Australia’s economic recovery has exceeded the expectation of many observers; however, a new report has warned that the country will not be able to sustain the current growth.

As indicated in the latest Deloitte Access Economics Business Outlook, Australia’s jobless rate was heading toward 3.5 percent, the lowest in half a century, while prices of export commodities soared to record highs, even higher than the peak of the resources boom a decade ago, thanks to the Russia-Ukraine war.

Nevertheless, Deloitte’s leading economist Chris Richardson said he believed that the recovery had hit its ceiling.

“We’ve ridden the current wave spectacularly well, but it has taken us about as far as it can,” he said.

“Now comes the tricky bit. Commodity prices will fall, and interest rates will rise.”

He said that the federal government’s expenses had been rising, and political parties would have to engage in a “complicated national conversation” to figure out how to pay for the increase in defence and social security budgets.

Additionally, Deloitte Access Economics holds the opinion that the inflation situation in Australia is less risky than in other countries due to the stagnation in wages growth and lesser rises in imported costs caused by the stronger Aussie dollar.

Like many other economists, Richardson anticipated that the Reserve Bank of Australia would lift the interest rate soon.

However, he said that it was unlikely for the official cash rate to rise to over three percent by late 2023, temporarily easing the worries of mortgage holders and business borrowers.

“That would sharply slow the economy and over-achieve on cutting inflation,” Richardson said.

Meanwhile, the report stated that Australia’s exports were benefiting from the post-pandemic global recovery and rising food and energy prices caused by the war in East Europe.

“Current conditions imply a pay rise for Australia of simply epic proportions,” Richardson said.

A shopper purchases prawns from Claudio's Seafood at the Sydney Fish Market in Sydney, Australia, on April 14, 2022. Lisa Maree Williams/Getty Images

The current global developments also support Australian coal, gas and iron ore exporters, which in turn will improve state and federal budgets.

According to the State of the States report published by Commonwealth Securities, all Australian states and territories are doing well economically.

More specifically, economic activity in Western Australia in the year to December 2021 was 36.1 percent higher than its decade average, the highest figure among the jurisdictions.

All states and territories also saw significant gains in employment in the 12 months to March 2022, with Western Australia and South Australia achieving the greatest jobs growth at four percent, followed by Queensland at 3.8 percent.

“The opening of local and foreign borders will continue to support the Queensland economy,” CommSec chief economist Craig James said.

“And Western Australia may also benefit from re-opening of borders, but to a lesser extent.”

Overall, Tasmania is still the best-performing economy nationwide in terms of eight economic indicators.

Victoria is just one step behind due to its strong performance in retail spending and housing finance, followed by Queensland and Western Australia.

The Australian Captial Territory and South Australia rank fifth, while New South Wales and the Northern Territory share the last two positions.