....if we continually using old tools (monetary policy) to fight a new and unprecedented problem (inflation character this time is somewhat disimilar) , then it is likely we end up with a recession.
....an interplay of opposing interests from business and workers resulting in feedback loops - higher inflation from oil/gas/shortages/climate make workers press for higher wages which further impinge corporate profits which makes them increase their prices causing inflation to remain sticky while even higher rates are needed to bring it lower, and higher rates compel landlords to raise their rent which makes businesses/workers seeking higher prices still....and so on and on.
...monetary policy is not the short circuit that is needed to terminate these feedback loops, especially when Govts are at the same dishing out subsidies to the common people to assist them (hence not reducing their capacity to spend and destroy the very demand to stop rising prices). Rather there ought to be a well established framework to benchmark price increases so that they are better controlled and not be left to the whims of free market that is profit driven.
...unfortunately the independence of central banks from Govts mean the Govt of the day has no jurisdiction over the a group of grey old men and women who only knew how to address problems from what they knew from their old written rules that may no longer be as relevant with present day circumstances and the culture of today's generation.
Boards sound alarm on a recession ‘we have to have’Patrick Durkin and
Sally PattenJun 14, 2023 – 5.00pm
Directors from major companies including Telstra, NAB and Coles warn a recession might be inevitable but say that avoiding government giveaways and wasteful spending and lifting productivity would lessen its severity.
Leading company chairman Graham Bradley has described the economy as “poised precariously on the cliff edge of recession”. Telstra chairman John Mullen has rated a recession a 50:50 chance. And Sydney Hydro director Tony Shepherd warned that the “resources sector won’t save us this time” from another recession we may “have to have”.
Mr Shepherd and Mr Mullen pointed to employees who are abusing working from home arrangements for contributing to the
largest fall on record in productivity, which Reserve Bank governor Philip Lowe said was key to the country’s economic health.
Responding to a
BOSS directors’ pulse survey, leading company chairman and directors including Mr Shepherd, Mr Bradley, Mr Mullen, Coles and Boral director Jacqueline Chow and National Australia Bank director Ann Sherry rated a recession much more likely than
earlier this year.
Mr Shepherd, also chairman of Macquarie Specialised Asset Management, Sydney Cricket Ground Trust, Infrastructure SA and a director of Virgin Australia International, warned that the
fight against inflation was likely to push the economy into recession.“In the immortal words of the great Treasurer PJK [Paul John Keating], it will be the recession we have to have. The alternative of stagflation would be far worse. Even our highly productive and demonised resources sector won’t be able to save us this time,” he told
The Australian Financial Review.
Mr Bradley, who is chairman of United Malt Group, Infrastructure NSW and Virgin Australia International, said that the economy was on a “cliff edge”.
“The economy is poised precariously on the cliff edge of recession driven by falling consumer spending, escalating energy bills and mortgage payments, by continued skills shortages and regulatory-driven delays on major new projects, particularly in the resources sector, resulting from ambiguous federal government policies,” Mr Bradley said.
Ms Chow, a director of Coles, Charter Hall, Boral and NIB, said she had shifted from a “quiet confidence” Australia would not experience a recession to a “moderate concern” that it would.
“The reason for not rating a more probable outcome of recession is that household gross savings rate is still high at 12 per cent, and population growth of 2 per cent is being supplemented with the return of migrant workers and will still support modest consumption,” she said.
Zurich and UniSuper director Nicolette Rubinsztein also said boards were concerned about the rising risk of recession.
“I have seen a number of economists now say it is their base case. However, some say it could be a mild recession,” she said.
A technical recession is defined by two negative quarters of growth, which Australia incurred for the first time in nearly 30 years during the pandemic but quickly rebounded. Australia is now facing its toughest conditions since the 2007 global financial crisis.
Commonwealth Bank of Australia and HSBC economists both put the
odds of a recession at 50 per cent, after cutting their economic growth forecast in response to the RBA raising the cash rate to 4.1 per cent this month.
Telstra’s Mr Mullen also rates the chance of recession as 50:50.
“I certainly think we are going to have a tough year next year, but if unemployment remains low we have at least a 50:50 chance of avoiding a formal recession. This will be further helped if inflation slows and we see rate cuts next year, which I think is likely,” he said.
Ms Sherry was also more optimistic, but warned the RBA’s 12 rate hikes since May last year were yet to fully hit. Online mortgage broker Lendi has warned the fixed-rate
mortgage cliff is imminent.“The economy and consumers are showing more resilience than expected and customers are changing spending to manage interest rate and cost pressures,” she said. “I think the challenge is that the impact of the rate rises hasn’t really hit the economy fully. The strength of the labour market may be our cushion.”
Ms Sherry and Mr Mullen were both reluctant to blame the rise in the minimum wage, which the
Fair Work Commission increased by 5.75 per cent this month.
“I don’t think it was sustainable to have wages lagging GDP growth for so long in such critical sectors as health and education. Inflation has many causes and managing one without the others is not a way to bring down inflation either,” Ms Sherry said.
Directors agreed government policies and productivity gains were crucial to determining how the economy fared.
Ms Chow said the federal government needed to avoid making inflation a “self-reinforcing problem”, including with budget measures to help support households.
“Capital investment is already subdued, adding to the productivity issue ... in turn, inflation will be even more persistent, which will understandably drive the government to abate the pain for households and support them further,” she said. “This will considerably slow down the singularly determined drive to bring down inflation.”
Mr Shepherd said that “every government decision needed to be examined through the lens of inflation and productivity”.
“The changes to our labour laws are misguided and will reduce productivity and add cost and stress to an already struggling economy.”
Mr Shepherd said all governments needed to review
this year’s Productivity Commission report and it’s 71 recommendations on the issue, which include prioritising and incentivising efficient economic infrastructure; innovation; education; training and skills; skilled migration and adoption of productivity-enhancing technologies.
“Our productivity performance over the last 10 years and prior to the pandemic has been poor. During the pandemic, working from home, absenteeism, disruption of supply chains all had a negative impact on productivity and continue to do so.”
Mr Mullen also pointed to employees who may be abusing work from home arrangements.
“It is contestable, but I wonder if the very recent declines have not been exacerbated by the working from home trend since the start of the pandemic,” he said.
“Anecdotally, many people are definitely working harder than ever and being more productive, but I don’t think this goes for everyone.”
Mr Mullen said the government needed to promote investment in AI, digitisation and technology, continue reduction of red tape and inflexible work practices, ensure liquidity in the capital markets, encourage venture capital and continue market deregulation.
Ms Sherry also pointed to a lack of investment in new skills, a lack of structural change to the tax system and slow adoption of research and development investment and new technology adoption.
“We have dropped to the middle of the OECD pack as a result,” she said.
“We need to improve the regulatory frameworks, so we are not so risk-averse, and start to drive national ambition, not just compliance.”
Ms Rubinsztein said Australia had suffered a challenge in productivity growth for decades.
“It is absolutely imperative the government prioritises this issue. I understand the pandemic has exacerbated this with problems with supply chains,” she said.
“I’ve been pleased to see the support for women in the workforce, through measures such as flexible working, childcare assistance and paid parental leave. I think this is an obvious strategy to improve productivity growth.”
