Global and domestic political and economic challenges are pushing Australia into its most turbulent year in nearly half a century, a national report has shown.
From geo-political tensions to climate change and the housing market downturn, this year is shaping up as one of the most unpredictable in decades, the Committee for Economic Development of Australia’s 2019 Economic and Political Overview report found.
“Arguably in almost 40 years of producing the (report), there has never been a year with so many question marks about how the year will unfold,” committee chief executive Melinda Cilento said.
Questions about the strength of the Chinese economy, US-China tension and social unrest caused by ongoing protests against economic policies in Europe are just some of the potential risks to global stability in 2019 outlined by CEDA.
The rise of populism around the world has also been a driver of current global uncertainty, with Brexit a “classic example”.
“You’re seeing big shifts in the political colour of elections across Europe,” Ms Cilento said.
The erratic style of the leader of the world’s most powerful nation is another major factor.
“The US president contributes enormously to uncertainty and volatility through the way in which he practices his politics,” Ms Cilento said.
International institutions that were established in the aftermath of World War II and have been “anchors of global prosperity” – such as the World Trade Organisation and the International Monetary Fund – may also see their influence wane in 2019.
High household debt a worry
High household debt, coupled with falling home prices, was highlighted as a potential threat to Australia’s economic prosperity in 2019.
“A constant source of worry in any analysis of Australian domestic risks is household debt and the housing market that lies behind it,” Commonwealth Bank chief economist Michael Blythe wrote in the CEDA report.
Australia’s household debt is among the highest in the world, rising to 127 per cent of GDP or 189 per cent of disposable income by the end of last year.
At the same time, the nation’s major housing remain “overvalued” despite the ongoing downturn, thanks to property price booms that saw prices hit historic highs in 2017.
“Debt and price concerns will carry over into 2019, with fears intensified by growth uncertainty, weak income growth, volatile financial markets, falling dwelling prices, political dynamics and debate about a credit crunch,” Mr Blythe said.
A “trigger” such as rising unemployment and/or rising interest rates would be required “to turn household debt into a serious problem for the economy and financial system”, with both seeming “unlikely at present”, he said.
However, as the majority of household debt in Australia is housing related – “the housing market itself is a potential trigger”.
Australia’s political leaders must step up and deliver
Against a backdrop of global instability, Australia’s politicians and policy makers must step up and “deliver strong policies in areas we can control that have been lacking”, Ms Cilento said.
“In an election year, there is an acute risk that policy discipline will slip, something that Australia can ill afford given the uncertain global environment and the need to build up economic and fiscal buffers,” she said.
“Policy inertia and federal government performance is having a negative impact on business decision-making and contributing to a risk-averse decision-making culture.”
Parliament’s key areas of focus should be energy, taxation, planning and infrastructure, climate change and long-term budget repair, CEDA found.
“Serious action” on climate change is essential, as is repairing the budget to insure against future shocks and ensure areas of fundamental importance to the community such as health, education, and aged care are properly supported.
“We know that there are some big spending pressures coming forward in the future around aged care … and we know of the pressures in the health care system that governments seem to be failing to address in any structural way,” Ms Cilento said.
“These are really important issues that matter for people’s wellbeing, and [are seen as] part of the social compact with the government.”