Soft landing for the Australian economy?


Commentary

Australia’s economic news over the past few weeks has been dark at best and, at worst, depressed. Soaring prices for energy, meat, vegetables and gasoline have significantly increased living costs.

Vegetables increased by 6.1% and beef and veal increased by 8.1%. Gasoline prices have historically remained high, rising by a whopping 32.3 percent.

Australia is currently facing a serious cost of living crisis. Prices are rising much faster than wages, which are not much higher than in 2013. The situation is particularly difficult in Western Australia, where inflation has reached nearly 6% and wages have risen by only 2%.

In addition to the significant rise in food and gasoline prices, the cost of energy is now exorbitantly high. Electricity prices in July are expected to increase by 18.3 percent in New South Wales (NSW), 12.6 percent in Queensland, 9.5 percent in South Australia (SA), and in some cases at an additional $ 250 per year. Torment the person.

The recent turmoil in the national electricity market was unprecedented. The potential for mass blackouts in Australia has increased significantly, with approximately 1,800 megawatts (MW) of coal-fired power plants in operation in Queensland, New South Wales, Victoria, South Wales, In Tasmania, the capacity of 1,200 MW is offline. Hospitals have been ordered to reduce electricity usage, and millions of Australians have been urged not to use basic appliances despite the cold winter weather.

Net zero push during energy crisis

The current energy crisis is at the height of global gas shortages, rising coal prices, aging coal-fired power plants, and the irresponsible transition to unreliable renewables.

Rowan Dean, the host of Sky News Australia, has blamed the “religious enthusiasm” of climate change policy for most of the issues. “Good labor, good green, good teal, good Scott Morrison, and good Matt Kean.” He said..

Epoch Times Photo
Yallourn coal-fired power plant in Latrobe Valley, Victoria, Australia, April 28, 2022. (Caden Pearson, The Epoch Times)

And in the midst of a serious energy crisis and rising living costs, Prime Minister Anthony Albanese has announced that Australia must achieve net zero emissions by 2050. The Prime Minister told other leaders that it would ensure that Australia would become a “clean energy superpower” regardless of the costs involved. He said the move will bring 82% of Australia’s national energy market from renewable energy sources by the end of the decade.

Albanige’s promise is a recipe for disasters that will definitely increase the chances of a major power outage in the near future. Such possibilities have already caused economic malaise in Australia and, in fact, throughout Western Europe. For example, in the United States, the Federal Reserve Board has raised the cash rate by 0.75 percentage points. This is the largest rise in 28 years.

Fight inflation

The Reserve Bank of Australia also raised its cash rate by 0.5 percentage points to 0.85 percent and predicted inflation to be 5.1 percent. Reserve Bank Governor Phillip Law warned that cash rates would rise further until inflation began to fall within the target range of 2-3%. As expected, if a commercial bank passes cash rates on to consumers, the borrower will have to fork out further for a mortgage, car loan, or credit card invoice.

Reserve banks are motivated by their desire to combat the rising inflation that hits Australia. Of course, raising the cash rate is always a risky business. This is because the more people pay for bank borrowing, the less money they spend on consumer goods, and thus the slower demand for these goods.

This can, in turn, lead to stagflation or even recession. Indeed, there are speculations that the central bank’s determination to aggressively fight spiral inflation will have a negative impact on economic growth and raise concerns about a recession in the first half of next year.

Inflation is also fueled by the COVID-19 pandemic in that it causes an imbalance between supply and demand for commodities. Specifically, supply issues are affecting the availability and transportation of building materials, slowing the distribution of food products.

The diversion of weapons and the provision of aid to Ukraine have also contributed to supply chain turmoil, and severe western sanctions on Russia have delayed the recovery of a slumping economy. And the madness of the ongoing blockade in China and its positive attitude towards the West and Taiwan, which show an attempt to rule the world, also disrupted the supply chain.

Epoch Times Photo
The container ship appears to be fishing on May 3, 2022 in Port Botany, Sydney, Australia. (Saed Khan / AFP via Getty Images)

Find a silver lining

The harsh economic outlook is also evidenced by the declining value of people’s equity portfolios. The value of stocks, including bluestock stocks, plummeted to a depth of concern. For example, the shares of Commonwealth Bank went from $ 106.71 (US $ 74) on June 1st to $ 87.26 on June 17th. The year of their dusk.

However, raising the cash rate is not always the unwelcome news. These are difficult times, especially for young people who have to buy their first home and repay their bank loans, but the interest earned on deposits can increase from virtually zero to perhaps 3.5%. So those who have interest-bearing deposits will benefit, that’s it.

I still remember when pensioners used the interest they earned on their deposits to increase their income. This is a strategy that failed when interest rates fell to near zero. At least for them, there is a little rest.

Of course, Australia is in this turmoil, mainly because of its politician’s incompetence. The disproportionate destruction of SMEs caused by strict COVID-19 measures is demonstrated by the continued great reliance on government support for survival.

Is our economy revival?

The legacy of excessive intervention in our daily lives is now a more fragmented society, with large conglomerates deprived of communities of small and medium-sized enterprises that were once essential to their character. It is a dominated and fragile economy.

Correctly as Professor of Economics Sinclair Davidson Remind us:

“The economy is about people. Their plans, their expectations, their relationships. For all talk about competition, the economy is about cooperation. The economy is not a machine that can be turned on and off at will. The network of interrelated cooperation that was the economy of February 2020 has been lost forever. The current economy is much smaller than it was just six months ago. The current problem is , I can’t be sure which part will be resurrected and which part will not be resurrected. “

Mark Twain once said, “While the legislature is open, human life, freedom and property are not safe.” From an Australian point of view, this statement is a perfect reflection of reality.

The challenge now is to contain inflation by improving the supply chain while maintaining post-pandemic economic expansion. Of course, this also requires more tax cuts and other measures to stimulate the economy and reduce the size of inefficient states.

Will the Australian economy remain weak?

The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.

Gabriel Moens

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GabriĆ«l A. MoensAM is an emeritus professor at the University of Queensland and vice president and dean of Murdoch University. In 2003, Mornes was awarded the Australian Centennial Medal by the Prime Minister for her service to education. He has taught extensively in Australia, Asia, Europe, and the United States. Moens recently published two novels, “ATwisted Choice” (Boolarong Press, 2020) and “The Coincidence” (Connor Court Publishing, 2021).

August Zimmermann

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August Zimmermann is a professor and director of legal affairs at the Sheridan Institute for Higher Education in Perth. He is also Chairman of the Western Australia (WA) Law Theory Association, Editor-in-Chief of Western Australian Law Scholars, and a member of the WA Law Reform Commission from 2012 to 2017. Notre Dame Australia has authored numerous books such as “Direito Constitucional Brasileiro”, “Western Legal Theory” and “Christian Foundations of the Common Law”.

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