The State of the Australian Economy

I am seeing posts on X (formerly Twitter) and Bluesky that argue all is well with the Australian economy. The stylised facts go something like this:

• Unemployment is at 4.0 per cent
• Headline inflation is at 2.3 per cent / year
• Wages growth is at 3.5 per cent / year (well above inflation)
• The stock market is at record highs
• Household Wealth is at a record high

And in the main these statistics are correct, although arguably some are in part misleading. More fundamentally, these statistics are cherry picked: Good statistics are highlighted and the more challenging ones are glossed over. I would contend the state of the Australian economy is much more of a mixed bag. There are definite strengths. But there are also challenges. And, importantly, there are pain points arising from the economic trajectory since the COVID pandemic notwithstanding the current good news. Let's begin with the strengths.

Australian Recessions

We have lived through more than 12 months of the advocates for an immediate central bank interest rate cut saying that if we don't get a rate cut this month, the economy will enter a recession.  So far those advocates have been wrong. It reminds me of the Paul Samuelson joke: “the stock market has predicted nine out of the last five recessions”.