Coming Back to Earth: Australia’s Economic Reality Check
At the recent CityLife Annual Business Retreat, I had the chance to cut through the economic noise and present the real story about where Australia stands right now. And in, my view, it’s a tale of coming back down to earth after a pretty wild ride.
The Recession That Wasn’t (Sort Of)
The thing that’s been driving many people crazy since mid-2022 was that we’ve technically been in an extended ‘per-capita recession’. But before we panic, we need to put this in perspective. While our overall economy kept growing it wasn’t growing fast enough to keep pace with our rapidly growing population as the backlog of international arrivals caused by the COVID border closures was unwound.
The good news is that’s now behind us. The latest GDP figures show we’re finally growing faster than our population again.
Why Everything Feels So Expensive
Remember 2021-2022 when everyone was flush with cash from government support, interest rates were basically zero, and nobody could travel anywhere? Well, real per-capita disposable income shot up like a rocket at that time. This measure, which is often used as a proxy for ‘standard of living’, jumped about 15% in 18 months.
But what goes up (that fast) will almost certainly come down, and boy did it come down. Since mid-2022, we’ve been sliding back toward reality with increases only starting again in the last couple of quarters. However, even after this corrective decline, Australians are still about 5% better off than before the pandemic hit. It just doesn’t feel that way because we got spoiled by that extraordinary peak, and we might have reasonably expected to have done even better had COVID never happened.
The RBA’s Balancing Act
The Reserve Bank has started cutting interest rates – 50 basis points so far this year – with markets expecting another 75 basis points by year’s end. Unemployment is still low, the inflation genie is only just back in the bottle, so why the aggressive cuts?
One word: tariffs.
The Trump Factor
Trump’s tariff announcements have sent global trade policy uncertainty through the roof – literally off the charts compared to anything we’ve ever seen.
For a trade-dependent nation like ours (we exported $644 billion last year, with China taking 30% of it), this uncertainty is massive. Our trade surplus with China alone is $80 billion, while we run a $53 billion deficit with the US. You can see why the RBA is being cautious.
The Bottom Line
We’re in this strange transitional moment where the economic data looks pretty solid – strong labour market, inflation under control, improving growth prospects – but everyone’s walking on eggshells because of global uncertainty.
My take? Australia’s fundamentals remain strong. We’ve got low debt levels compared to our international peers, a resilient economy, and we’ve managed the post-COVID transition better than many. The challenge now is navigating the external headwinds, particularly around trade policy.
The volatility of recent years is settling down, but we’re not quite back to “normal” yet.
