DASHBOARD: AU Economic Review of June 2023

In the report, we discuss the most important developments of the month for the Australian economy, including updates on inflation, unemployment, cash rate target,

In addition, we review the recent statement on critical technologies by the Australian Government.

Some key takeaways include:

• The RBA’s decision to leave the target cash rate unchanged in July at 4.10%.
• Unemployment rate fell to 3.6% in June.
• Monthly CPI decreased to 5.6% in June.
• The Australian Government has detailed a multitude of multi-billion dollar investments in its critical technologies strategy.

On 4th of June, the Reserve Bank of Australia’s Board decided to leave the target cash rate unchanged at 4.10 per cent

The Reserve Bank of Australia (RBA) has decided to keep the cash rate on hold at 4.1 percent, but economists still anticipate at least one more rate rise in the near future. The RBA governor Philip Lowe stated that the decision to keep the rate unchanged at 4.10% “will provide some time to assess the impact of the increase in interest rates to date and the economic outlook”. Economists believe the upcoming June quarter consumer price index, unemployment data, and retail trade figures will play a crucial role in determining whether the central bank raises the cash rate to 4.35% at its August meeting.

In the RBA’s announcement, it acknowledged that the effects of the tightening cycle experienced so far is causing the economy and the jobs market to cool. However, it is widely understood that there is no assurance a successful soft landing for the economy will occur. The RBA maintains that it is vigilant about the risk of high inflation leading to broader price and wage increases if inflation expectations become entrenched.

Although the RBA has paused the rate hike cycle, Governor Lowe emphasised that further tightening of monetary policy may be necessary to bring inflation, which currently stands at 5.6 percent, back within the central bank’s target range of 2 to 3%.

The decision to keep rates on hold came as a relief for households. Finance Minister Katy Gallagher mentioned that the government is collaborating with the RBA and returning a significant portion of revenue upgrades to the budget. Shadow Treasurer Angus Taylor suggested that the government should reduce spending to alleviate pressure on the RBA to raise interest rates.

Some economists disagreed with the decision to keep rates on hold, pointing to stronger-than-expected jobs data and persistent price pressures indicating the need for a rate increase. While others considered it a prudent move, setting the stage for a potential rate increase in August. Economists generally believe that the RBA will deliver at least one more rate rise, with the June quarter consumer price index being a critical factor in the decision-making process.

The effects of the RBA’s tightening cycle, where it has raised the target cash rate 12 times, is being felt disproportionately between different groups of homeowners. The RBA announcement highlighted this notion.

“While housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances.” – RBA Announcement 4th July

During May, the ABS had a number of media releases that reflect important trends that affect the state of the economy

On the 6th of June  the ABS announced the unemployment rate fell 0.1 percentage point to 3.6% in May (seasonally adjusted), the increase in employment in May also saw the number of employed people in Australia reach 14 million for the first time. Bjorn Jarvis, ABS head of labour statistics stated that “just before the start of the pandemic almost 13 million people were employed in Australia. In May 2023, this had risen to just over 14 million people”.

On 29th June, the ABS announced that job vacancies fell 2% between February and May, being the fourth consecutive quarterly decrease. Despite the ongoing decline over the last year, vacancies remained elevated. While job vacancies have fallen by around 10% over the past year, they are still relatively high, Mr Jarvis, claimed that “businesses continue to report difficulties in recruiting and retaining staff”.

On inflation, the ABS announced on the 28th June that the monthly Consumer Price Index (CPI) indicator rose 5.6% in the 12 months to May 2023. Michelle Marquardt, ABS head of prices statistics, said:

“This month’s annual increase of 5.6% is the smallest increase since April last year. While prices have kept rising for most goods and services, many increases were smaller than we have seen in recent months.” – ABS announcement on the 28th June

Source: ABS

Australia’s economic conditions continue to challenge small businesses despite some positives

Some pertinent economic challenges Small and Medium-sized Enterprises (SMEs) may face include the difficulty to borrow money, and pay off existing debt due to the largely continuous rising of interest rates. An inability to borrow money may stifle companies plans for investment or expansion, or may create solvency issues if companies’ liquidity positions are suffering badly.  Moreover, a tight labour market, with low unemployment, may make it difficult for SMEs to recruit and retain employees, which can result in increased costs and decreased productivity. To overcome these challenges, SMEs may need to adjust their strategies, seek alternative sources of financing, explore new markets, and implement effective risk management strategies. It is crucial for businesses to have timely access to business intelligence to stay informed and mitigate potential risks.

Critical Technologies Statement by the Australian Government.

On 19th of May 2023 the Australian Government released its Critical Technologies Statement which provided a thorough assessment of the Critical Technologies the Government is focussed on integrating into society, and its plan to enable adoption within  a range of different sectors. The statement outlined the different technologies the Australian Government listed as critical to Australia’s development going forward, notably being AI, quantum technologies, autonomous systems and robotics, and advanced manufacturing. The proposed initiatives to unlock the benefits of these technologies will sum to tens of billions of dollars over multi-year timeframes, and is a massive undertaking with large scale implications.

The statement emphasised the importance of unlocking the obvious benefits these technologies can bring to impact the economy, national security and social cohesion. Whether the execution of this policy on Critical Technologies is successful is yet to be seen, however, in the statement the Government detailed its progress so far and its plan going forward. Initiatives in place by the Government to support research capabilities include the launch of the $1.6 billion Economic Accelerator grant program and the Trailblazer Universities Program, which will provide $362.5 million to six selected universities for research and development collaboration with industry partners. Additionally, the National Collaborative Research Infrastructure Strategy is allocating $4 billion to enhance access to cutting-edge research infrastructure. To address defence challenges, the government has established the Advanced Strategic Capabilities Accelerator with an investment of $3.4 billion over the next decade. Investments in critical technologies are being facilitated through the $15 billion National Reconstruction Fund and the $60 million funding for the National Quantum Strategy.

In terms of international partnerships, the government is strengthening the capacity and resilience of Indo-Pacific allies through the Cyber and Critical Tech Cooperation Program. Collaboration with India is being fostered through the Australia-India Framework Arrangement on Cyber and Cyber Enabled Critical Technologies Cooperation. The National Intelligence Community is making significant investments to protect critical technologies and leverage world-leading capabilities. The government is also developing the Australian Cyber Security Strategy for 2023-2030 and implementing measures to prevent unwanted transfer of critical technologies. The Defence Industry Development Strategy aims to establish sovereign industrial capability and create secure, long-term jobs for Australians while safeguarding national interests.

About Venture Insights

Venture Insights is an independent company providing research services to companies across the media, telco and tech sectors in Australia, New Zealand, and Europe.