While the Australian economy is powering along courtesy of hundreds of billions in deficit spending, emergency low interest rates and a dramatic spike in energy prices, the International Monetary Fund (IMF) has confirmed that 2023 is going to be a return to business as usual for Australia — pre-pandemic business, that is.
In its latest global forecasts, the IMF says the commodities boom unleashed by Vladimir Putin’s invasion of Ukraine will boost GDP in Australia this year, allowing us to outperform the world economy. Real growth in Australia is projected to rise to 4.2% this year, compared with a 4.1% rise forecast in the January edition of the fund’s World Economic Outlook — but well above the lowered world estimate for 2022 of 3.6%.
No wonder Australian shoppers are happily spending at the moment — Australian Bureau of Statistics monthly spending data for households, released on Wednesday, showed a 7.7% rise in February after a 5% rise in January, with clothing and footwear (20.2%), recreation and culture (17.8%), and hotels, cafes and restaurants all showing strong growth. It’s not just energy prices — consumers are buoyant, too (which might end up being a telling factor in a tight election).
But growth is forecast to fall sharply in 2023, to just 2.5% — well below the 3.6% estimated for the world next year — returning us to the position we were in during the years of subpar economic growth leading up to the pandemic.
Inflation is forecast to rise 3.9% (it was 3.5% in 2021), but that will be well below the forecast for advanced economies of 5.7%. It is forecast to fade to 2.7% in 2023. Unemployment is forecast to be 4% this year, rising to 4.3% in 2023, a forecast that the Morrison government will ignore in its election campaign.
What will drag down growth? Our best frenemy, China. The IMF forecasts GDP growth there of 4.4% this year, down from 8.1% last year. First-quarter GDP rose an annual 4.8% in China but the quarter-on-quarter GDP figures (before the dramatic impact of the lockdowns in April in cities such as Shanghai) slowed to a weak (by Chinese standards) 1.3%, down from 1.6% in the three months to December. China’s growth in 2023 is forecast to recover to 5.1%, unlike much of the rest of the world (including Australia). That assumes the present COVID-19 wave leaves no lasting impact on the Chinese economy.
The other factor is interest rates: the IMF assumes a significantly tighter monetary policy in Australia as in the rest of the world, even if it doesn’t share the enthusiastic assumptions of inflation hawks that the Reserve Bank will jack up interest rates dramatically, starting in June.
But think through what the IMF forecasts mean. In 12 months’ time, whatever labour market pressures there are for higher wages growth will begin evaporating as unemployment rises. Those pressures have yet to yield any noteworthy wage rises so far. Workers have a limited period to get the benefit of a tight labour market. If you’re in a long-term contract or multi-year enterprise agreement, bad luck — you’ll miss out (exactly the kind of agreements Morrison and big business want to extend across the workforce, they revealed this week).
John Howard scored a palpable hit on Paul Keating during the recovery from the early 1990s recession when he referred to “five minutes of economic sunshine”. It summed up the mood of a nation that had seen meagre rewards for its punishment from a ferocious period of economic and financial turmoil, exacerbated by the Reserve Bank’s determination to put fighting inflation ahead of fighting unemployment.
But it also accurately sums up what the government, big business and the Reserve Bank have in mind for Australian workers between now and 2023, if the IMF is anything to go by.
This article was first published by Crikey.
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