In a week dominated by headlines declaring the “weakest growth in decades” (excluding Covid) with an economy being “smashed” by the Reserve Bank, it might seem Australia teeters on the edge on an abyss.
For some households and businesses, the challenge of paying stratospheric housing costs amid 13-year-high interest rates will alas be overwhelming.
For the bulk of the population, though, there is an option of optimism. It might not be a Panglossian “best of possible times” but the worst may already be behind us (provided large, lurking problems remain at bay).
Sure, the June quarter national accounts weren’t champagne-worthy. Per capita GDP fell for a record sixth quarter in a row to be 2% lower than its recent peak in the June quarter of 2022, the Australian Bureau of Statistics said.
However, in that statistical cherry tree, it’s not hard to pick a lot of decent fruit from rotten ones.
That cumulative per capita drop, for instance, wasn’t great but as the seasoned economist Saul Eslake notes, four other downturns since the 1960s prompted by tighter monetary policy produced declines of between 2.8% and 6.3%. (The latter related to a painful 1981-83 recession overseen by the then treasurer John Howard who was this week busy providing advice to the current incumbent Jim Chalmers.)
Media usually focuses on news. The June quarter data wasn’t in fact newsy, since we’ve known for months we’d get the weakest growth figures in this current slowdown. (The RBA’s 0.9% annual growth forecast was narrowly exceeded, nor does the governor, Michele Bullock, observe a “smashed” nation.)
Aside from Covid-era contortions, Australia’s economy has reliably grown for decades. Our swelling population has helped, as has China’s voracious demand for our commodities (and university places), lifting living standards without us having to be particularly savvy.
Yes, consumers are under the pump, with households saving just 0.9% of income in the year to June, the lowest since 2006-07, the ABS said. That ratio, though, should pick up this quarter and beyond as the stage-three tax cuts (revised by the Albanese government amid a storm of media angst earlier this year) do their thing.
The $23bn in federal tax cuts are the equivalent of two RBA rate cuts of 25 basis points. But they’re spread out over the year, and early indications – such as flat retail turnover in July – suggest households aren’t in a splurging mood that would concern an RBA board still wary about ruling out another interest rate hike.
In fact, additional savings would fatten the buffer most – but not all – families have to cope with any further economic slowdown. (Household wealth is also up almost $2tn, or 13%, since May 2022.)
Bullock on Thursday said that, yes, some might be forced to sell their homes because they couldn’t meet debt repayments. However, “despite the pressure on household budgets, only a small share of borrowers is currently at risk of falling behind on their mortgage repayments”.
Less than an hour after wrapping up her speech, the Council of Financial Regulators – of which Bullock is a member – echoed that surety.
Despite global risks remaining elevated and challenging domestic conditions, Australia’s financial system “continued to display a high level of resilience”, the council said in its quarterly update.
“[M]ost Australian household and business borrowers were managing pressure on their finances; loan arrears were picking up only gradually and from a low level,” it said.
Inflation, meanwhile, seems to be back trending lower, with the Australian Bureau of Statistics’ gauge excluding volatile items dropping to 3.7% in July, its lowest level since January 2022.
Global oil prices are wilting to one-year lows, implying good news for motorists. That other inflation bane – the rental market – is now at its weakest since the early phases of the pandemic, CoreLogic said on Friday.
The case for cautious hope hinges largely on employment continuing to defy dismal consumer and business sentiment surveys. Provided people keep finding work and the hours they need, they should be able to service loans and buy necessities, at least.
Since the RBA began lifting its cash rate (and the Albanese government took office) in May 2022, the economy has added almost 1m jobs, extending a run that remains perplexingly positive.
Joblessness is up from 3.9% then to 4.2% in July, a rate still low by historical levels – a remarkable result, given soaring interest rates and a record share of the population (67.1%) in the labour market.
Eslake says that’s the story Chalmers should be trumpeting. The government is attempting to stop the economy stalling and people losing their jobs in droves. “Chalmers can say, ‘Hey, it’s working,’” he says, rather than saying the RBA was “smashing the economy” when it’s not smashed.
The rosy jobs cherry might yet turn sour.
One labour hire manager points to dwindling profits at Ashley Services and IT specialist PeopleIn as portents of a downturn.
He also reckons corporate grief tends to be most acute a year after interest rates peak when relatively painless measures have been exhausted. Unless the RBA has another unpleasant rates whack to wield, we should be near that stress peak.
Job vacancies are turning lower, and were a quarter off their peak as of May, the ABS said. This data will be updated on 26 September, two days after the RBA’s next board meeting.
However, the economy boasted 353,000 job openings, some 55%, or 125,000, more than in February 2020 when the pandemic began ramping up.
Smaller firms are generally considered more at risk than larger ones. Judo Bank’s latest survey of small- and medium-sized enterprises, released on Friday, offered another cheery cherry.
Business confidence for August climbed to its highest level since January 2023 “as price pressures lessened”, the bank said. Business conditions were also above the 50.0 neutral mark for the first time in three months and rising at the fastest clip since April.
Manufacturing, too, is preparing “a major rise” in investment next year, the ABS said.
Signs of an upturn are vulnerable to shocks, such as China’s slowdown being much worse than official data suggest (as this recent visitor contends), or US elections trigger violent disputes. More weird weather, fuelled by global heating, is a given.
In the meanwhile, though, positive tidings abound – if you want to look for them.
Peter Hannam is Guardian Australia’s economics correspondent
