On Boxing Day, I was interviewed by Sky News’ Gary Hardgrave to discuss the outlook for the Australian economy.
In the interview, I explained how 2023 was an absolute shocker for Australian households and why we should expect similar in 2024, despite the prospect of rate cuts late in the year.
Below are key highlights from the interview alongside key charts.
Edited Transcript:
Australian households have had it pretty tough in the last 12 months. The national accounts for the September quarter that were released early this month showed that per capita household incomes fell about 6% in the last years.
Households are getting smashed by higher interest rates. They’ve had wage growth below inflation, rising rents, all that sort of thing. And because of that, we’re actually cutting back spendings.
The latest retail data from the ABS as well as the household consumption data is all falling. So I’m not surprised that retailers are doing it tough.
On the goods side, there’s a global glut in goods at the moment. So basically, anything that comes in to the country via ship has been falling in price. It’s basically the reverse of what happened during the pandemic when we had all these supply shortages.
Now we’ve got the supply side rebounding just as global demands has decreased. So effectively, you’ve got this over supply of goods as well and that’s now exporting goods deflation across the globe.
I think most of the central banks have actually finished their tightening cycles, which is good after 18 months of absolutely punishing households across the world, especially here in Australia.
Because of this whole goods global deflation, inflation’s coming down across the globe, including here. We’ve also got some weakness in economies.
So, I think the central banks are done with rate rises. We could actually start seeing some rate cuts later in the year, which would be great news.
Here domestically, I think we’re going to have another pretty tough year because households have just been smashed, they’ve had falling incomes, etc.
But one thing that’s actually held up the economy in the face of those falling incomes was households drew down on their savings. So, the savings rate fell to nearly zero in the national accounts.
What that means is because they’ve burned through their savings. So, unless we get income growth, we’re not going to have growth in household consumption.
All our growth is going to come from population growth. And I think what that means is that Australia is going to have a very weak economy and we are probably going to have this ongoing per capita recession into 2024.
I could also have mentioned that Australia’s unemployment rate is likely to rise to near 5% by the end of 2024, which will also smash households, alongside rising rents.
Regardless, the per capita recession that Australians have experienced in 2023 will likely be repeated in 2024, with households bearing the brunt.
