At a recent Moir Group boardroom discussion, Paul Bloxham, Chief Economist for Australia, New Zealand, and Global Commodities at HSBC, shared insights into the global and Australian economic outlook, including why interest rate cuts remain some time away.
He discussed the ongoing challenges posed by inflation, interest rates, and the property market, as well as the broader global economic landscape. He also explored how Australia’s economic trajectory differs from other nations, particularly the US and Europe.
Global economic overview — Recovery amid shifting geopolitics
Unusual global forces
Paul highlighted that the global economy remains in a state of flux due to the pandemic’s aftershocks, inflation, and geopolitical challenges such as the war in Ukraine. Inflation spiked to levels not seen in decades, forcing central banks to raise interest rates aggressively. However, the global economy is in better shape than expected, with inflation starting to ease in many regions.
Pandemic recovery and inflation
The surge in post-pandemic demand, combined with supply chain disruptions and the Russia-Ukraine war, triggered global inflation. While demand has since slowed, the US has managed to maintain economic growth thanks to increased productivity and inward migration. Europe and New Zealand, by contrast, have been in recession for the past two years. The upcoming US election may further shape trade policies.
China’s economic challenges
China continues to face significant challenges, particularly in its property sector. Property investment has dropped by around 40%, with many developers now insolvent. While China’s shift towards energy infrastructure is supporting growth, there is increasing global support for protectionist measures to safeguard domestic industries.
Geopolitical uncertainty
Ongoing conflict in Ukraine and tensions in the Middle East continue to create volatility in commodity markets. However, the US—now the world’s largest oil producer—has helped stabilise supply. India remains a strong growth story (6–7%), though its economic relationship with Australia remains limited.
Australia’s economic outlook — Why Australia is different
Strong population growth
Australia’s resilience is underpinned by strong migration. Over 560,000 migrants entered Australia last year, driving demand for housing and employment and helping the economy avoid recession.
Inflation and interest rates
Inflation has fallen from a peak of 9% to around 3.9%, but remains above the Reserve Bank’s target. Interest rate cuts are unlikely before mid-2025, as the RBA continues to prioritise inflation control and full employment.
Housing market dynamics
Despite rising interest rates (from ~2% to ~6%), house prices remain at record highs. This is largely driven by migration and strong demand, with supply constraints continuing to put pressure on the market.
Labour market and productivity
Australia’s labour market remains strong, with high participation rates. However, productivity remains a concern. Pandemic-era policies preserved jobs but slowed necessary economic adjustments. Improving productivity is now critical to supporting growth and reducing inflation.
Government spending
Public sector hiring—particularly in healthcare and social services—has supported employment growth. However, public demand is increasingly crowding out private sector activity, a trend that may continue in the lead-up to the next election.
Policy considerations
Paul highlighted the need to carefully consider potential reforms, including negative gearing, given their broad economic impact. He emphasised the importance of prioritising productivity reforms to support long-term growth and ease inflationary pressures.
Final thoughts
Australia has avoided recession, supported by strong population growth and a resilient labour market. However, sustained productivity improvements will be essential to maintain growth and reduce inflation.
Interest rate cuts remain unlikely in the near term, and policymakers must focus on supply-side reforms to improve economic efficiency.
Globally, uncertainty remains, with key risks including geopolitical tensions, China’s economic slowdown, and upcoming elections in major economies. Australia’s long-term resilience will depend on how effectively these risks are managed.
If you would like to continue the discussion or explore these themes further within your organisation, we would be pleased to assist.
