Economy resilient, despite inflationary pressures

Confidence can be an elusive but vital factor in economic performance, including in uncertain times. It encourages businesses to invest in new plant and equipment and hire extra staff; it encourages consumers to spend, boosting demand for goods and services and reinforcing profits. Over time, it can make a difference between growth and contraction. Jim Chalmers is not the first newly installed Treasurer eager to cast aspersions on the economic management of his predecessors and lament the “conditions that we have inherited’’. Nor is he exaggerating when he says Australia faces difficult conditions. Inflationary pressures, especially soaring energy prices, and supply chain difficulties are problematic.

However much Dr Chalmers wants to take some paint off the Coalition’s reputation for economic management, he needs to be careful to avoid talking down the nation’s prospects. Unemployment, after all, is 3.9 per cent, its lowest level since 1974, causing a drop in welfare payments. And the national accounts, released on Wednesday, show the economy grew by a robust 0.8 per cent over the first three months of this year. Annual growth over the year to March stood at 3.3 per cent. It was driven in the March quarter by strong household spending and businesses replenishing their inventories, the Australian Bureau of Statistics found.

Despite destructive floods in northern NSW and southeast Queensland, labour shortages, and the lingering effects of the Omicron variant, the economy proved resilient. Australians continued to eat out and began travelling again in the first three months of the year. With the West Australian border reopening in early March and restrictions on international travel lifted, spending on transport services grew “a whopping 60 per cent’’, the ABS noted. Rising international demand for resources pushed Australia’s terms of trade to a record high, up 5.9 per cent.

Dr Chalmers said while the national accounts contained “some pleasing elements’’, the nation faced serious constraints and economic challenges. Inflation and interest rates have been higher since the end of March, petrol prices were up 12 per cent since the end of April, and wholesale electricity and gas prices were significantly higher. Amid ongoing inflation, the Reserve Bank board will meet again on Tuesday to review interest rates.

“There is no point tiptoeing around these serious economic challenges,’’ Dr Chalmers said. “We have inherited high and rising inflation and rising interest rates, we’ve inherited falling real wages, and we’ve inherited $1 trillion in debt.”

The economy was weaker in the March quarter than was forecast at election time, he said. “Consumption, dwelling investment, new business investment, exports and nominal GDP were all weaker in the March quarter than was anticipated by our predecessors,” he said.

“These national accounts are a glimpse of the mess that the former government left behind for us to clean up. We do have labour shortages and we do still have Covid absenteeism, and the international environment has become more challenging as well.’’

While the Albanese government details its litany of inherited woes, the public is more interested in how it will handle the changing economic conditions. Anthony Albanese has flagged his government’s support for the Fair Work Commission to grant a minimum wage rise to cover inflation, currently 5.1 per cent. Regardless of objections from the Greens, Dr Chalmers, sensibly, backed more onshore gas developments on Wednesday. A “perfect storm of energy price spikes’’ was damaging employers, households and the national economy, he said. Boosting gas supplies will help boost confidence.