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What’s wrong with the Australian economy?
Following 28 years of uninterrupted economic growth, a mining boom, relatively low unemployment and a fiscal surplus, consumers are googling “Australian recession” as fears about the economy set in.
What’s wrong with the Australian economy?
Following 28 years of uninterrupted economic growth, a mining boom, relatively low unemployment and a fiscal surplus, consumers are googling “Australian recession” as fears about the economy set in.
During the 2020 Fidelity International market outlook briefing, Fidelity’s global cross-asset investment specialist, Anthony Doyle, explained why the growth seen in the last decade is unlikely to be matched.
Despite a seemingly strong outlook, the official cash rate for Australia is 0.75 per cent, with economists predicting further rate reductions in February 2020.
“If you have told me our cash rate would be the same as the Bank of England, I would have told you something has gone very wrong with the Australian economy,” Mr Doyle said. “Particularly given the UK’s outlook and currently three or four years of uncertainty with it’s largest trading partner.”
Mr Doyle explained the Australian economy has been suffering from “chronic under-investment in the supply side” for the past decade, leading to lower growth today.
“The RBA is now alluding to it and asking for the fiscal lever to be pulled in the Australian economy,” Mr Doyle said.
However, the fund manager does not believe the Australian economy will receive a boost in fiscal stimulus due to the conservative strategy adopted by the current government.
“If you think about fiscal conservative, it’s political ideology is defined by small government, a balanced budget and lower taxes.
“If we do see any loosening on the fiscal reigns, it will be on the tax side, which tends to be popular with voters,” Mr Doyle explained.
In order to fix the Australian economy in the longer term, Mr Doyle advocated for fixing the supply side of the economy, to improve the production capacity, and remove red tape through structural reforms.
“The difficult environment the Australian economy currently finds itself in, there’s no quick fix,” Mr Doyle said.
Despite highlighting the flaws in the Australian economy, Mr Doyle argued the Australian economy will not go into recession in 2020. Instead, the economy will “muddle through”, he said.
“I don’t expect a recession, conversely I don’t think we are going back to the races, we are not going anywhere near above-trend-like growth in the coming year,” Mr Doyle concluded.
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