The Reserve Bank of Australia (RBA) has been at the center of economic debates for years, but this time, its new Governor, Michelle Bullock, has made waves with a statement that has many scratching their heads. Bullock recently declared that the Australian economy is "running hot," a claim that seems to contradict what many Australians are experiencing daily. So, what's really going on?
The RBA's Surprising Take: Is the Economy Really 'Running Hot'?
In a statement that left many economists and business owners puzzled, Bullock suggested that the RBA considered raising interest rates because the economy was supposedly overheating. But does the data support this claim? Let’s break it down.
The Numbers Tell a Different Story
While Bullock might describe the economy as "running hot," the actual numbers paint a much bleaker picture:
GDP Growth: The latest figures show GDP growth at a sluggish 0.9%, down from 1.1%. With population growth at 2.5%, this means per capita GDP is actually shrinking by 1.5%. That’s a significant downturn reminiscent of the 1990s recession.
Unemployment: The unemployment rate has risen from 3.5% to 4.1%, with job ads plummeting by 27%. Businesses are cutting back on hiring, and the trend is expected to worsen, with downside risks looming as we head into 2025.
The Inflation Paradox
Inflation has been a major concern for the RBA, and Bullock’s statement indicated that it might be a persistent problem until 2026. But here’s where it gets interesting: while Bullock claims that inflation remains a significant threat, money markets—driven by global investors—are signaling a different story. They believe inflation is on the decline, which contradicts the RBA's outlook. So, who's right?
Public Spending vs. Private Struggles
Bullock hinted that government demand might be the "hot" part of the economy she’s referring to. Indeed, hiring in the public sector has been strong, with government spending driving a large portion of job creation over the past year. But outside of government jobs, the private sector tells a different tale:
Retail Spending: Retail sales are dreadful, with major retailers like Coles, Woolworths, JB Hi-Fi, and Harvey Norman reporting weak share prices—a clear indicator that consumers are cutting back.
Construction & Hospitality: Both sectors are struggling, with weak demand and lower activity levels. People are prioritising mortgage and rent payments over discretionary spending, putting further pressure on these industries.
Is the RBA Ignoring the Bigger Picture?
One of the most alarming aspects of Bullock’s statement is the apparent disregard for the human impact of economic policies. The RBA’s mandate includes the welfare of Australian citizens, yet Bullock’s focus on inflation seems to overshadow the rising unemployment and economic hardship facing many Australians. Mentioning "inflation" 20 times in an 800-word statement while only referencing "unemployment" once raises questions about the RBA’s priorities.
What’s Next?
As we move into the second half of 2024 and beyond, the stakes are high. If the RBA continues to dismiss market signals and focuses solely on inflation at the expense of unemployment, Australia could be headed for a hard landing—complete with high unemployment and a potential recession.