What are the challenges facing Australia’s economic recovery?

Highlights 

• While the Australian economy is showing improving economic conditions, some challenges to its recovery can make the return to normalcy slower.
• Labour shortages seen across the globe have slipped to the Australian ecosystem, where prices have risen at a much greater pace than usual.
• Some challenging conditions still persist in the housing sector in which the government has not been able to inculcate much policy changes.

While signs of economic revival can be evidently seen across Australia, it is hard to say if the economy is even remotely close to its pre-pandemic self. Vaccination rates have been on the rise and few economic indicators have shown improvement, making experts hopeful of the imminent return to normalcy. However, some challenges remain as roadblocks on the road to recovery for Australia.

Some respite was offered by the improving economic indicators, such as increasing retail trade in September and an overall reduction in the budget deficit over the previous year. Australian government’s Treasurer Josh Frydenberg revealed that the final budget deficit for the 2021 financial year was lower than the previous year’s deficit. A major factor facilitating this recovery was an uptick in job opportunities and unprecedented economic and health support to Australian households and businesses.

The pandemic also put additional pressure on the government to pay heed to the housing problem affecting Australia. The severity of the situation put the soaring housing prices at the center of focus for the Australian government, making reforms a necessity in the sector.

In the current scenario, authorities must focus on the challenges facing the country’s economic recovery for the coming years.

DO NOT MISS: RBA decides to proceed without a yield target

Global supply-chain bottlenecks

Supply constraints have been affecting the global production processes, making recovery difficult for economies already battered by the pandemic. Australia was also on the receiving end of this problem as much of the supply-side constraints could be seen impacting the nation’s construction sector.

Additionally, the consequences of labour shortage seen across the globe have also shifted to the Australian ecosystem, where prices have risen at a much greater pace than usual. The issue has stemmed from the lack of sufficient labour force in the transportation sector, causing delays in each leg of the production process.

Like many other countries, Australia has had to bear the brunt of these delays in the form of halted business activity, which ultimately took a toll on commodity prices.

ALSO READ: How global banks can help in controlling greenhouse gas emissions

The need to address the core housing problem

The pandemic has put Australia’s housing problem into perspective, raising the need for long-awaited reforms in the sector. However, the Australian government has failed to recognise the core problems that persist in the housing industry.

Taking a cue from its neighbour New Zealand, where a similar housing price catastrophe has gripped the economy, Australia could have opted for increased investment in social housing. While such measures have been adopted by some state governments in Australia, the central government has not opted for a commitment of this sort. Moreover, there have been no efforts made to contribute to any emergency homelessness program or longer-term housing.

ALSO READ: 95% mortgage: All you need to know

Despite these challenges, Australia’s economy has grown by 0.7% in the second quarter of 2021. However, the overall impact of the reinstated lockdowns is yet to be felt in all parts of the country. A potential contraction in the economy can be expected as the results for the third quarter are awaited. However, the economy might bounce back to higher growth in the fourth quarter, when the effects of the lockdown would feel relatively dulled out.

RELATED READ: Corona outbreak wreaks havoc on Australia, with retail sales falling 4.4%