Last week, independent economist Tarric Brooker coined the phrase “burnout economics” to describe what is going on at present in the Australian economy.
In a nutshell, Brooker argued that the Albanese Government has one foot on the accelerator via its record immigration program, while the Reserve Bank of Australia (RBA) has one foot on the brake via its aggressive interest rate hikes.
RBA Governor Phil Lowe indirectly alluded to this “burnout economics” in his testimony last week to Senate Estimates.
Lowe basically argued that the supply-side of the economy – specifically business investment, infrastructure investment, and housing – were not keeping pace with the record immigration, which is projected to see 715,000 net overseas overseas migrants flood into Australia this financial year and next.
“The amount of capital that on average we have to work with is one of the drivers of productivity growth”, Lowe told Senate Estimates.
“We do need to increase the capital stock in line with the number of people in the country and that requires high levels of investment. And if we don’t do that, then we’re going to struggle”.
“If we’re going to have 2% more people in the country [this year], we need 2% more capital, and that requires investment by business and investment by government”.
Lowe said the housing market is the most visible instance of what happens when investment lags population growth.
“Solving the housing problem, I think that’s the single biggest thing we could do. And then we’ve got to build the transportation infrastructure to support that”, Lowe said.
“Are there 2% more houses? No”.
The above statement by Lowe was a veiled shot at the Albanese Government, which has chosen to force-feed Australia with record immigration without any plan to accommodate the extra people.
In turn, property rents are soaring and productivity is declining, which is stoking inflation and forcing the RBA to lift rates higher.
The process will continue as long as the federal government continues to run immigration beyond what the supply-side of the economy can handle.
Economists are now concerned the economy will be driven into recession.
Challenger’s chief economist Jonathan Kearns believes that a recession in Australia is highly likely following the latest increase in the cash rate and the growing prospect of further rate rises.
The Reserve Bank of Australia’s former head of financial stability contends that the key question now is how deep the recession will be.
KPMG’s chief economist Brendan Rynne anticipates an economic downturn in the second half of 2023.
While Rynne says it might not necessarily fit the criteria for a technical recession, it will certainly feel like a recession to the nation’s households.
Yarra Capital head of macroeconomics, Tim Toohey, claimed the latest rate hikes were “overreach” that unnecessarily risked the economy.
Finally, now believes there is a 50% chance that Australia will move from a per capita recession into a full blown technical recession in the second half of 2023.
The “burnout economy” is forcing the RBA to hike interest rates, which is annihilating the one-third of households with mortgages, without addressing the underlying causes.
The ultimate answers to Australia’s inflation problem rests with the Albanese Government: moderate immigration and fix the east coast energy market.
