WEBVTT - Will our economy be better next year?

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<v Speaker 1>Already and this is this is the Daily This is.

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<v Speaker 2>The Daily ohs oh, now it makes sense. Good morning

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<v Speaker 2>and welcome to the Daily OS. It's Wednesday, the eighteenth

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<v Speaker 2>of December. I'm Sam, I'm Zara. We're almost at the

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<v Speaker 2>end of twenty twenty four and as the impacts of

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<v Speaker 2>the COVID pandemic started to fade, there were hopes at

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<v Speaker 2>the beginning of the year that the economic damage caused

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<v Speaker 2>by the three year interruption would reverse and it would

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<v Speaker 2>be a year of economic recovery, growth, innovation and opportunity. Well,

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<v Speaker 2>that wasn't quite the case. It was a tough year

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<v Speaker 2>for the Australian economy, with headlines about inflation, cost of living, housing, affordability,

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<v Speaker 2>and wealth inequality dominating the headlines.

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<v Speaker 1>Those are a bunch of topics that we have spoken

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<v Speaker 1>about on this podcast at various points throughout the year,

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<v Speaker 1>and we've brought you updates and explanations and the stories

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<v Speaker 1>behind each of those topics. But as we now conclude

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<v Speaker 1>the year, where are we at.

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<v Speaker 2>Well, if we look ahead, the tune has changed a bit.

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<v Speaker 2>Australia's Treasurer Jim Chalmers says that the worst is behind us.

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<v Speaker 2>Donald Trump has promised Americans a great economic year ahead,

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<v Speaker 2>and the RBA has even signaled that it may be

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<v Speaker 2>warming to the idea of a drop in interest rates.

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<v Speaker 2>And so in today's pod, we're going to chat to

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<v Speaker 2>Matt Grudnoff, he's a senior economist at the Australia Institute,

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<v Speaker 2>about how the economy fared in twenty twenty four here

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<v Speaker 2>in Australia, What do you think is going to happen

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<v Speaker 2>in twenty twenty five and what's giving him hope. Matt,

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<v Speaker 2>thanks so much for joining us today.

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<v Speaker 3>Thanks for talking with me.

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<v Speaker 2>Let's pretend that we're ten years into the future and

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<v Speaker 2>somebody comes up to you and asks, what was twenty

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<v Speaker 2>twenty four like economically? How would you answer that question?

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<v Speaker 3>Oh, it was a bad year. I think it was

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<v Speaker 3>a year that the economy only grew by zero point

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<v Speaker 3>eight percent, So, I mean, that's the slowest growth we've

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<v Speaker 3>had since way back in the nineteen nineties when we

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<v Speaker 3>had a recession. Outside of the pandemic, of course, it

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<v Speaker 3>was a year in which households struggled. We saw particularly

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<v Speaker 3>housing increase, not just interest rates and mortgages, but also

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<v Speaker 3>rents went up substantially. It was a year where household

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<v Speaker 3>stopped spending, and household spending makes up about half of

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<v Speaker 3>all of economic activity, so that's the reason why it

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<v Speaker 3>grew so slowly. And in fact, in per capita terms,

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<v Speaker 3>that is, per person, we actually went backwards for the

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<v Speaker 3>entire year. So it was only population growth that saw

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<v Speaker 3>the economy grow at all.

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<v Speaker 2>And if I had you in this conversation twelve months ago,

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<v Speaker 2>were you expecting the year to pan out in the

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<v Speaker 2>kind of way that it did.

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<v Speaker 3>Yeah, that's a good question. I don't know, is the

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<v Speaker 3>short answer. But economists have constantly asked this, And what

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<v Speaker 3>I say is macroeconomic forecasters exist to make astrologers look good.

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<v Speaker 3>We are really bad at predicting the future. So I'm

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<v Speaker 3>not going to pretend I would have known. But high

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<v Speaker 3>interest rates were definitely part of it, and interest rates

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<v Speaker 3>were high before this year, and so it was probably

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<v Speaker 3>not a huge surprise. Those high interest rates have really

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<v Speaker 3>dragged on households. It's made it hard for them to

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<v Speaker 3>spend money because they're paying so much more for their mortgage,

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<v Speaker 3>they're paying so much more in rent, and so they're

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<v Speaker 3>just not able to spend as much of their money

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<v Speaker 3>on all the other things they need to buy.

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<v Speaker 2>And with an amazing year really of international news. I mean,

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<v Speaker 2>we had the most people go to an election I

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<v Speaker 2>think at any other point than history. There was international

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<v Speaker 2>conflicts that continued very strongly throughout the year. Do you

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<v Speaker 2>think that we can attribute a lot of the economic

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<v Speaker 2>pain that were felt in Australia to those global issues? Oh?

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<v Speaker 3>Yeah, absolutely. So this massive outbreak of inflation we've seen

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<v Speaker 3>in Australia over the last couple of years has happened internationally.

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<v Speaker 3>It's caused by supply side factors, is emerging from the

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<v Speaker 3>COVID pandemic, the war in Ukraine, climate change sort of

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<v Speaker 3>impacts with flooding and droughts, and it certainly, because it's

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<v Speaker 3>happened all over the world, it has to have been

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<v Speaker 3>caused by international factors. So yes, absolutely, the pain that

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<v Speaker 3>households are feeling has more to do with international factors

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<v Speaker 3>than domestic factors.

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<v Speaker 2>And so do you think then, based on that logic,

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<v Speaker 2>and based on the facts that we don't seem to

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<v Speaker 2>be any closer to resolutions in some of those major

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<v Speaker 2>conflicts around the world. We now have a president in

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<v Speaker 2>the United States who is quite isolationist in his economic

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<v Speaker 2>policy and wants to keep jobs and manufacturing in America.

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<v Speaker 2>Do you think that that then will continue us feeling

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<v Speaker 2>that sort of pain from global conditions.

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<v Speaker 3>I think that next year will be better. And you know,

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<v Speaker 3>again economists about it predicting the future. But with that

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<v Speaker 3>in mind, I think it is going to be better

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<v Speaker 3>next year. And the reason is is because inflation is

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<v Speaker 3>ebbing away. We see it across the world. All countries

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<v Speaker 3>are seeing their inflation rate come back down to a

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<v Speaker 3>more normal level and that will continue in Australia. And

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<v Speaker 3>when it gets back into the Reserve Bank's target band,

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<v Speaker 3>the area of inflation they want to keep inflation at

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<v Speaker 3>between two and three percent, then we'll see interest rates

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<v Speaker 3>come back down, we'll see economic activity pick up, and

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<v Speaker 3>things will get easier. But you know, look, absolutely there's

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<v Speaker 3>going to be weird curve balls. Trump is nothing if

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<v Speaker 3>not chaotic. We don't know what that's going to bring.

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<v Speaker 3>But I have a feeling that it'll actually be more

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<v Speaker 3>chaotic for people in the US that it will be

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<v Speaker 3>for the rest of the world. But that said, I

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<v Speaker 3>mean America is the biggest economy in the world. When

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<v Speaker 3>weird stuff happens there, when their economy struggles. It does

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<v Speaker 3>affect the world economy and we're part of that.

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<v Speaker 2>We'll be back with the rest of the they dive

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<v Speaker 2>after this short message from our sponsor speaking to a

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<v Speaker 2>young Australian. How would you expect them to first get

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<v Speaker 2>a bit of a signal in their daily life that

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<v Speaker 2>things are getting a bit better.

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<v Speaker 3>I think they'll notice that prices stop increasing. Now. It's

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<v Speaker 3>really important to know that when we say inflations coming down,

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<v Speaker 3>that doesn't mean that prices are going to go back

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<v Speaker 3>to where they were last year or the year before.

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<v Speaker 3>It just means they're stopped going up quickly.

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<v Speaker 2>Coffee's not going back to three dollars.

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<v Speaker 3>It is not. It is not that those days are gone.

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<v Speaker 3>But what will happen is it probably will mean that

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<v Speaker 3>they're wages which have actually been going up slower than inflation.

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<v Speaker 3>That is, the amount of stuff they can buy has

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<v Speaker 3>been shrinking. They'll start to see their wage increase faster

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<v Speaker 3>than how fast prices are going up. If they have

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<v Speaker 3>a mortgage, if they're lucky enough as a young person,

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<v Speaker 3>there's unfortunately not very many of those, they might see

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<v Speaker 3>interest rates fall. Rents probably won't be rising nearly as fast.

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<v Speaker 3>We might see an easing on the housing the really

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<v Speaker 3>acute tightness of housing. That's not to say that the

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<v Speaker 3>affordability crisis will go away. We've spent twenty years screwing

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<v Speaker 3>up the housing market. It's going to take more year,

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<v Speaker 3>or even five years or ten years to fix the problem.

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<v Speaker 3>But I think that the main thing they will see

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<v Speaker 3>is that their wage will start increasing faster the prices,

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<v Speaker 3>so they'll start getting a little bit of breathing room.

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<v Speaker 2>Matt, do you think we're headed for a cost of

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<v Speaker 2>living election? Let's say it's called, you know, April may ish.

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<v Speaker 2>Do you think that's going to be the number one topic?

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<v Speaker 3>I think definitely yes, that's going to be the number

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<v Speaker 3>one topic. And interlinked with that because the two are

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<v Speaker 3>one and the same is kind of a housing or

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<v Speaker 3>a you know, the cost of housing kind of they're

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<v Speaker 3>going to be the main election issues. I think we've

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<v Speaker 3>seen that in all the elections that we've seen, and

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<v Speaker 3>we've seen a lot of elections this year. We've seen

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<v Speaker 3>that around the world. I don't think Australia is going

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<v Speaker 3>to be any different. Voters are grumpy at the moment.

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<v Speaker 3>They're grumpy because, you know, their standard of living has

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<v Speaker 3>been going down, not up. You know, incumbents tend to

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<v Speaker 3>face the pain, whether or not they're completely at fault.

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<v Speaker 3>They tend to be the ones that cop it when

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<v Speaker 3>voters are grumpy.

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<v Speaker 2>Final question from me, Matt Here. At the Daily OS,

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<v Speaker 2>we end every bulletin where we do headlines with some

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<v Speaker 2>good news, and you and I have talked today about

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<v Speaker 2>some troubles that the economy has experienced in twenty twenty four.

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<v Speaker 2>You're saying things could look a little better in twenty

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<v Speaker 2>twenty five, but it's far from a massive resurgence. Based

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<v Speaker 2>on your economic astrology, is there something giving you hope

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<v Speaker 2>about economic forecasts looking ahead or has there been something

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<v Speaker 2>in twenty twenty four that's given you hope in the economy?

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<v Speaker 3>Yeah. I think that the thing that's giving me hope

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<v Speaker 3>is that because this inflation is a worldwide phenomenon and

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<v Speaker 3>because it's going down all over the world, I think

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<v Speaker 3>we're through relatively through the worst of it. That is,

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<v Speaker 3>I think that you know, part of twenty twenty three

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<v Speaker 3>and twenty twenty four are going to be the bad years,

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<v Speaker 3>and that things will actually be better next year. I

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<v Speaker 3>think that incomes are going to continue to grow faster

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<v Speaker 3>than inflation. And I think that people won't necessarily suddenly

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<v Speaker 3>wake up one day and everything will be great, But

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<v Speaker 3>week by week, month by month, they're going to notice

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<v Speaker 3>things getting better. And you know, we couldn't say that

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<v Speaker 3>for the last year.

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<v Speaker 2>Matt Rudnov, Senior economists at the Australia Institute, Thank you

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<v Speaker 2>so much for your time.

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<v Speaker 3>Thank you very much for chatting with me.

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<v Speaker 1>Thank you for joining us on today's episode over the

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<v Speaker 1>Daily Os taking a walk through the year that was

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<v Speaker 1>and what will come with Australia's economy as we head

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<v Speaker 1>into an election year. We'll be back later today, of

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<v Speaker 1>course with the headlines, but until then, enjoy your Wednesday.

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<v Speaker 2>My name is Lily Madden and I'm a proud Arunda

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<v Speaker 2>Bungelung Kalguton woman from Gadighl Country. The Daily oz acknowledges

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<v Speaker 2>that this podcast is recorded on the lands of the

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<v Speaker 2>Gadighl people and pays respect to all Aboriginal and Torres

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<v Speaker 2>Strait Island and nations. We pay our respects to the

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<v Speaker 2>first peoples of these countries, both past and present.