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The Daily ohs oh, now it makes sense. Good morning and welcome to the Daily OS. It's Wednesday, the eighteenth of December. I'm Sam, I'm Zara. We're almost at the end of twenty twenty four and as the impacts of the COVID pandemic started to fade, there were hopes at the beginning of the year that the economic damage caused by the three year interruption would reverse and it would be a year of economic recovery, growth, innovation and opportunity. Well,
that wasn't quite the case. It was a tough year for the Australian economy, with headlines about inflation, cost of living, housing, affordability, and wealth inequality dominating the headlines.
Those are a bunch of topics that we have spoken about on this podcast at various points throughout the year, and we've brought you updates and explanations and the stories behind each of those topics. But as we now conclude the year, where are we at.
Well, if we look ahead, the tune has changed a bit. Australia's Treasurer Jim Chalmers says that the worst is behind us. Donald Trump has promised Americans a great economic year ahead, and the RBA has even signaled that it may be warming to the idea of a drop in interest rates. And so in today's pod, we're going to chat to Matt Grudnoff, he's a senior economist at the Australia Institute, about how the economy fared in twenty twenty four here in Australia, What do you think is going to happen
in twenty twenty five and what's giving him hope. Matt, thanks so much for joining us today.
Thanks for talking with me.
Let's pretend that we're ten years into the future and somebody comes up to you and asks, what was twenty twenty four like economically? How would you answer that question?
Oh, it was a bad year. I think it was a year that the economy only grew by zero point eight percent, So, I mean, that's the slowest growth we've had since way back in the nineteen nineties when we had a recession. Outside of the pandemic, of course, it was a year in which households struggled. We saw particularly housing increase, not just interest rates and mortgages, but also
rents went up substantially. It was a year where household stopped spending, and household spending makes up about half of all of economic activity, so that's the reason why it grew so slowly. And in fact, in per capita terms, that is, per person, we actually went backwards for the entire year. So it was only population growth that saw the economy grow at all.
And if I had you in this conversation twelve months ago, were you expecting the year to pan out in the kind of way that it did.
Yeah, that's a good question. I don't know, is the short answer. But economists have constantly asked this, And what I say is macroeconomic forecasters exist to make astrologers look good. We are really bad at predicting the future. So I'm not going to pretend I would have known. But high interest rates were definitely part of it, and interest rates were high before this year, and so it was probably not a huge surprise. Those high interest rates have really
dragged on households. It's made it hard for them to spend money because they're paying so much more for their mortgage, they're paying so much more in rent, and so they're just not able to spend as much of their money on all the other things they need to buy.
And with an amazing year really of international news. I mean, we had the most people go to an election I think at any other point than history. There was international conflicts that continued very strongly throughout the year. Do you think that we can attribute a lot of the economic pain that were felt in Australia to those global issues? Oh?
Yeah, absolutely. So this massive outbreak of inflation we've seen in Australia over the last couple of years has happened internationally. It's caused by supply side factors, is emerging from the COVID pandemic, the war in Ukraine, climate change sort of impacts with flooding and droughts, and it certainly, because it's happened all over the world, it has to have been
caused by international factors. So yes, absolutely, the pain that households are feeling has more to do with international factors than domestic factors.
And so do you think then, based on that logic, and based on the facts that we don't seem to be any closer to resolutions in some of those major conflicts around the world. We now have a president in the United States who is quite isolationist in his economic policy and wants to keep jobs and manufacturing in America. Do you think that that then will continue us feeling that sort of pain from global conditions.
I think that next year will be better. And you know, again economists about it predicting the future. But with that in mind, I think it is going to be better next year. And the reason is is because inflation is ebbing away. We see it across the world. All countries are seeing their inflation rate come back down to a
more normal level and that will continue in Australia. And when it gets back into the Reserve Bank's target band, the area of inflation they want to keep inflation at between two and three percent, then we'll see interest rates come back down, we'll see economic activity pick up, and things will get easier. But you know, look, absolutely there's going to be weird curve balls. Trump is nothing if not chaotic. We don't know what that's going to bring.
But I have a feeling that it'll actually be more chaotic for people in the US that it will be for the rest of the world. But that said, I mean America is the biggest economy in the world. When weird stuff happens there, when their economy struggles. It does affect the world economy and we're part of that.
We'll be back with the rest of the they dive after this short message from our sponsor speaking to a young Australian. How would you expect them to first get a bit of a signal in their daily life that things are getting a bit better.
I think they'll notice that prices stop increasing. Now. It's really important to know that when we say inflations coming down, that doesn't mean that prices are going to go back to where they were last year or the year before. It just means they're stopped going up quickly.
Coffee's not going back to three dollars.
It is not. It is not that those days are gone. But what will happen is it probably will mean that they're wages which have actually been going up slower than inflation. That is, the amount of stuff they can buy has been shrinking. They'll start to see their wage increase faster than how fast prices are going up. If they have a mortgage, if they're lucky enough as a young person, there's unfortunately not very many of those, they might see
interest rates fall. Rents probably won't be rising nearly as fast. We might see an easing on the housing the really acute tightness of housing. That's not to say that the affordability crisis will go away. We've spent twenty years screwing up the housing market. It's going to take more year, or even five years or ten years to fix the problem.
But I think that the main thing they will see is that their wage will start increasing faster the prices, so they'll start getting a little bit of breathing room.
Matt, do you think we're headed for a cost of living election? Let's say it's called, you know, April may ish. Do you think that's going to be the number one topic?
I think definitely yes, that's going to be the number one topic. And interlinked with that because the two are one and the same is kind of a housing or a you know, the cost of housing kind of they're going to be the main election issues. I think we've seen that in all the elections that we've seen, and we've seen a lot of elections this year. We've seen that around the world. I don't think Australia is going to be any different. Voters are grumpy at the moment.
They're grumpy because, you know, their standard of living has been going down, not up. You know, incumbents tend to face the pain, whether or not they're completely at fault. They tend to be the ones that cop it when voters are grumpy.
Final question from me, Matt Here. At the Daily OS, we end every bulletin where we do headlines with some good news, and you and I have talked today about some troubles that the economy has experienced in twenty twenty four. You're saying things could look a little better in twenty
twenty five, but it's far from a massive resurgence. Based on your economic astrology, is there something giving you hope about economic forecasts looking ahead or has there been something in twenty twenty four that's given you hope in the economy?
Yeah. I think that the thing that's giving me hope is that because this inflation is a worldwide phenomenon and because it's going down all over the world, I think we're through relatively through the worst of it. That is, I think that you know, part of twenty twenty three and twenty twenty four are going to be the bad years, and that things will actually be better next year. I think that incomes are going to continue to grow faster
than inflation. And I think that people won't necessarily suddenly wake up one day and everything will be great, But week by week, month by month, they're going to notice things getting better. And you know, we couldn't say that for the last year.
Matt Rudnov, Senior economists at the Australia Institute, Thank you so much for your time.
Thank you very much for chatting with me.
Thank you for joining us on today's episode over the Daily Os taking a walk through the year that was and what will come with Australia's economy as we head into an election year. We'll be back later today, of course with the headlines, but until then, enjoy your Wednesday.
My name is Lily Madden and I'm a proud Arunda Bungelung Kalguton woman from Gadighl Country. The Daily oz acknowledges that this podcast is recorded on the lands of the Gadighl people and pays respect to all Aboriginal and Torres Strait Island and nations. We pay our respects to the first peoples of these countries, both past and present.