Global economic pressures require stronger action locally

Tuesday, 28 June 2016

A sharper than expected economic downturn in China and the uncertainty of Brexit are among a range of global forces that are likely to impact on Australia's economy over the next 12 months, prompting University of Adelaide economists to call for stronger intervention at a local level.

The University's South Australian Centre for Economic Studies (SACES) will today deliver its latest Economic Briefing Report, with the report containing a mixed bag of positive and negative signals for the economy.

"Our report highlights that no matter who wins the Federal Election this Saturday, there are a significant number of risks that need to be carefully negotiated by government over the next 12 months," says Associate Professor Michael O’Neil, Executive Director of SACES.

He says that while the national economy has picked up pace over the last year, "this improvement hasn't been felt by ordinary Australians, as declining terms of trade mean that our relative living standards are lagging behind".

"Recent weakness in wages growth, falling labour productivity and a shift in the economy from mining to lower paid services jobs have been contributing factors. More importantly however, entrenched low inflation and low growth in major overseas economies may now be spilling into the Australian economy," he says.

"Global conditions remain weak and despite some bright spots the overall economic outlook is definitely weighted to the downside, so this won't provide any impetus to Australia's economy. A sharper than expected slowdown in China remains a distinct possibility given a number of risks in China's domestic financial system, and their shift in economic model from exports and investment to consumption and services.

"The weakness in global conditions may contribute to more inward-looking policies, as demonstrated by recent political developments in the US and Britain’s referendum on exit from the EU," he says.

Associate Professor O'Neil says his centre believes there is a need to re-balance Australia's macroeconomic policy to provide an economic stimulus, in the form of infrastructure investment. "Such a move by government would reduce the need to resort to experimental monetary policy, which would not be in our long-term economic interests," he says.

"There are a variety of forms that this increased infrastructure investment could take. In our view, prime candidates would include: addressing major public transport infrastructure bottlenecks in the eastern states; constructing interconnectors to better integrate the National Electricity Market and enhance market competition; and accelerating the rollout and capacity of the National Broadband Network (NBN)."

Associate Professor O'Neil says the the outlook for the South Australian economy would be cautiously optimistic "if not for the upcoming impact of the end of vehicle assembly in Australia".

"South Australia's recent export performance has been pleasing, with exports of goods and services in real trend terms in the March quarter up 17% compared to the same time last year. The short to medium term outlook for the South Australian economy is for respectable growth. Business investment is expected to improve somewhat, although we also expect the unemployment rate to rise," he says.

The full report will be delivered to leaders of the South Australian business community at the SACES Economic Briefing in Adelaide at midday today.


Contact Details

Associate Professor Michael O'Neil
Executive Director, SA Centre for Economic Studies
The University of Adelaide
Business: +61 8 8313 4545
Mobile: +61 (0)408 812 032

Mr David Ellis
Deputy Director, Media and Corporate Relations
External Relations
The University of Adelaide
Business: +61 8 8313 5414
Mobile: +61 (0)421 612 762