Australian economy struggles under 'burden of structural challenges': Deloitte
Deepening structural challenges in the economy will further erode living standards unless urgently addressed, the big four firm cautions.
Deloitte has outlined some of the major challenges facing the Australian economy in its September 2024 edition of its Business Outlook, particularly those on the supply side.
At the beginning of the year, the firm noted the primary economic challenge for Australia would be increasing the rate of growth rather than lowering the rate of inflation.
The most latest business outlook said that “those sentiments [now] ring true.”
The report explained that the key to sustainably lifting the supply capacity of the economy would be through productivity as both population and participation growth have stalled.
Deloitte Access Economics partner Cathryn Lee said the Australian economy was not tracking well pre-COVID-19 and it has continued to not track well post-pandemic.
“Economic growth for the 2019 calendar year was a miserly 1.8 per cent- at the time, the slowest rate of growth in any calendar year since 1991- while late in the year the Reserve Bank cut the cash rate to just 0.75 per cent,” Lee said.
“Almost five years on, and for all the disruption caused by the pandemic, a lot feels the same.
“Most notably, the important, structural challenges facing the Australian economy remain.”
According to the Reserve Bank, it was believed that the level of demand in Australia was too high relative to supply, which contributed to the upward pressure on prices.
Deloitte said this view was “debatable” given that an economy’s supply capacity can only be estimated, not observed.
Deloitte Access Economics partner Stephen Smith said an example of this included estimations from the Organisation for Economic Co-operation and Development which suggested not only that demand lagged supply but that the gap had widened.
“Even if it is the case that the level of demand in Australia is too high relative to supply, surely the solution is to lift supply through improved productivity, not to crush demand with higher interest rates,” Smith said.
“Reform drums seem to beat louder each year, and yet action on reform remains stalled.”
“To be clear, tinkering is not tax reform and renovating institutions is not restructuring or rebuilding. Two decades without major reforms have left Australians with a sluggish and uninventive economy full of oligopolies in key sectors.”
The report also included the firms’ expectations for housing construction, which remained stagnant due to supply-side issues.
Smith noted with permanently higher construction costs, the sector would be unwilling and unable to lift supply unless property prices also lift.
“Nobody should pretend that boosting productivity growth is easy,” he said. “But some of the more obvious opportunities are being left on the table.”
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