The four big reasons Australia’s economy is in crisis

Australia’s economy is facing four significant challenges amid an ongoing cost of living crisis which is crippling families.

The nation’s current account plunged into a $4.9bn deficit in the first three months of 2024 – a far cry from the $5.1bn surplus which was originally forecast. 

Across the March quarter, goods export volumes slumped, reflecting reduced local coal and iron ore production.

However, this was more than offset by an increase in good import volumes, led by a sharp restocking of consumer goods. 

Opposition Treasury spokesman Angus Taylor noted in Question Time on Tuesday domestic inflation ‘is growing at five times imported inflation’ with core inflation up to 4.1 per cent in April – which is higher than the UK, US, Japan and Canada.

‘After three failed Labor budgets driving up the price of groceries, electricity and mortgages, [will] the Treasurer finally admit, as the RBA Governor pointed out, that inflation is homegrown,’ he asked.

Treasurer Jim Chalmers accepted that inflation ‘remains too high’, but pointed out ‘inflation had a six in front of it’ when Labor came to office in May 2022.

‘We acknowledge it is still too high with a three but it is almost half what we inherited from those [opposite].

‘We are paying too much interest on the debts, we had almost nothing to show for all the waste and rorts for which the shadow treasurer was the poster child. 

‘We have spent two years cleaning up the mess that we inherited.’

Services exports edged higher across the March quarter, as an increase in tourism was partly offset by falling international student numbers.

Owing to lower commodity prices for Australian iron ore and coal exports, alongside a decline in petrol prices on the import side, Australia’s terms of trade rose slightly.

As a result, net exports slumped to $17.8bn, with the decline expected to shave off 0.9 percentage points from Wednesday’s March quarter GDP reading, worse than the 0.6 reduction analysts had forecast.

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Separate data released on Tuesday also showed inventories climbed as businesses restocked more than expected over the quarter.

‘Some of this weakness will be offset by an increase in inventories,’ Oxford Economics Australia’s Sean Langcake said.

‘But, (net exports) will drive a weaker-than-expected growth result in the March quarter.’

Following the fresh figures, economists will refine their forecasts for the March-quarter national accounts data to be released on Wednesday.

On the back of weakening consumer spending and declining construction activity, the data is expected to show the economy expanded by an anaemic 0.2 per cent in the three months to March, unchanged from the December quarter reading.

An outcome in line with consensus forecasts would be annual growth easing from 1.5 per cent to 1.2 per cent, well below projected population growth of 2.5 per cent and marking a deepening of Australia’s per-capita recession for a fourth consecutive quarter.