The economy has slowed, which is
just as well as the tensions were beginning to cause problems. The
clearest sign of potential trouble is the large current account deficit
(CAD), which has exceeded 7% of GDP in the March quarter of this year.

But
there are also signs of inflationary pressures – shortages of skilled
labour and the apparent slowdown of productivity growth being the most
obvious. Offsetting this is the deregulation of large parts of the
labour market. As the IPA has pointed out, there are now more
self-employed contractors than members of unions in the Australian
workforce, a stunning turnaround and one that’s likely to be reinforced
by the government’s mooted industrial relations (IR) reforms.

There
are shortages of infrastructure – skilled labour, port capacity, rail
and road capacity, looming power and water shortages, etc – with no
quick fix. But at least this is on the policy agenda, and will be
addressed.

As we enter the new financial year, the outlook is
pretty good. Housing markets seem to be slowing (in the resource
states) or experiencing a soft landing (Sydney and Melbourne), and this
will help provide necessary restraint to domestic demand. Global growth
looks set to continue at strong rates and global interest rates are
low. This should help exports to provide the engine for growth while
helping to reduce the excessive CAD.

Overall, there are clear
risks but the Australian economy should be able to register reasonable
growth as long as the global economy holds up. Our fingers are crossed.

Read more here.

Peter Fray

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