Ayan Tripathi
The Reserve Bank warns of slower days ahead
In its latest projections, the Reserve Bank of Australia (RBA) expects the Australian economy to grow just 1.6% over the year to June 2028, the worst medium-term outlook in the bank’s forecasting history. This is more than a full 1% below the Commonwealth Treasury’s forecast of 2.75% in the Mid-Year Economic and Fiscal Outlook. Alex Joiner, chief economist at IFM Investors, expects that slower GDP growth could translate to slower improvements in living standards, while posing “a threat to fiscal sustainability”.
One of the main implications of lower growth, according to Deloitte Access Economics Stephen Smith, is “lower tax take and slower wage growth”. And beneath it all lies productivity. Former Commonwealth Treasury official Gene Tunny points to an inefficient allocation of resources, namely labour and capital drifting from the more dynamic private sector to the less efficient public sector, which drags on productivity. Thus, as production falls for each hour worked, inflation becomes stickier, real wages flatten, and living standards take a hit.
How can this analysis be applied to HSC Economics?
This analysis can be applied to “analyse the causes and effects of inflation on the Australian economy”. it's a good start for students to firstly identify that a key cause of recent inflationary pressures has been stalling productivity; however, that is insufficient due to a lack of detail. As such, students need to draw out additional reasons for weak productivity, like ineffective government spending, which has been increasingly allocated to the public sector opposed to the more efficient private sector.
Likewise, students can identify how these inflationary pressures can worsen living standards. However, as always, students need to support their claims with additional theory, for instance, higher inflation erodes the real purchasing power of consumers, meaning they can buy less with the same amount of money, thus reducing their living standards.
Australia and the EU edge closer to a trade deal, but beef stands in the way
Australian Trade Minister Don Farrell is in Brussels this week, attempting to close decade-long negotiations with the European Union (EU) on a free trade agreement. This move comes amid a hostile global trade environment driven by unpredictable US tariff policy and assertive Chinese trade practices, encouraging both parties to reduce their dependence on each other and ultimately diversify their trade. An EU-Australia free trade agreement could result in the elimination of around 98% of tariffs between the two economies, likely boosting the Australian economy by up to $7.4b by 2030, according to Preliminary estimates.
Despite the positives of the trade deal, closing it is a tough proposition for the EU, thanks to a key sticking point: beef. As it stands, the EU is reportedly offering to cap Australian beef imports at roughly 30,000 tonnes per year while Australia is pushing for 40,000 tonnes. Farrell warns that he will walk away from the table if the agricultural offer doesn’t improve; sentiments echoed by the National Farmers Federation, which declared that “no deal is better than a bad deal for Australian agriculture”.
How can this analysis be applied to HSC Economics?
This analysis can be applied to “explain the impact of free trade on the Australian economy”, a common short-answer question. Here, students can show how free trade can benefit Australian economic growth. As always, students need to show the flow between free trade, lower-priced products through the achievement of comparative advantage, and higher export revenue as a result of increased export demand and, therefore, stronger aggregate-demand-led growth. Additionally, students can use a stat from the analysis above, identifying that Australian economic growth may rise by up to $7.4b by 2030 as a result of free trade.