Amid drought and housing-related negatives, including cautious consumers and a downturn in housing construction, Australia now faces a third threat: cratered confidence among consumers and businesses, Deloitte cautioned.
Deloitte’s latest Access Economics Business Outlook forecasts more unease for Australia, with the chief culprit being a case of cratered confidence, which, coupled with drought and housing-related weakness, will leave Australia locked into slow growth.
While our low confidence is partly due to a dark global political backdrop, there are numerous issues at home, too, in particular the Reserve Bank’s communication blunders which, according to Deloitte, have left confidence worse than the economy itself.
“We’re on course to keep muddling through the impacts of drought, housing-related weakness and scared consumers. Yet the nation’s growth won’t lift all that much from today’s decade low, and we don’t expect unemployment to drop or wages to accelerate through 2020: we’ll be comfortably treading water rather than roaring into recovery,” Deloitte warned.
The financial services giant explained that Australia’s private sector is in the slow lane, so there’s not enough momentum in sales to hand businesses much pricing power. Looking across at inflation, it predicted that the current lows will linger for longer and will understandably spill over onto interest rates.
“The Reserve [Bank] will cut rates twice more, partly as the economy is still weak, but mostly because inflation is so stubborn.
“Yet we think the RBA will flinch from quantitative easing: that’s a big step. And, like Hotel California, it’s hard to leave. Meantime, with the RBA still on the warpath, we see the Australian dollar remaining at the lower end of its trading range.”
Deloitte, however, warned that Australia’s biggest mistake of the moment is to dwell on the problems. It noted that there’s plenty of sectoral success stories around, too, such as the growth in health care and other sectors linked to taxpayer pockets.
‘Don’t be scared, be prepared’
Deloitte explained that while the engine of the Australian economy is in low gear, the economy isn’t nearly as bad as public opinion has it.
It opined that the confidence of both families and businesses is in worse shape than the economy itself, which gives rise to a rising risk that “those downbeat views end up becoming a self-fulfilling prophecy”.
Deloitte advised businesses to pay more attention to, and integrate into their planning, the US–China rivalry and climate change.
It defined these global issues as Australia’s “two tensions”.
Deloitte said: “First, our economy depends on China, and yet our security ties are with the US, and, second, our economy earns big bucks from fossil fuels, and yet our landscape is relatively exposed to climate change.
“Both these juggles may become harder over the coming decade. In the meantime, however, the failure of the world to comprehensively tackle climate change suggests extreme events will become more likely than they once were.”
Maja Garaca Djurdjevic is the editor of My Business.
Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe.