Gross domestic product, inflation, unemployment, business cycle, recession, government policy. Macroeconomics zooms out to view the economy on the scale of an entire country.
We are so lucky in Australia, touch wood, to have been relatively unaffected by the current global health crisis and my heart goes out to the people who have lost loved ones, lost their job. What is going on in India and other parts of the world right now is heartbreaking.
But studying economics right now, in the midst of this global ‘event’, is interesting. Our Australian economy is kind of fascinating. We’ve had low wages growth, low inflation, relatively low unemployment for many years. Then COVID hit our shores and suddenly no more travel, tourism or hospitality. Massive job losses, but the pain of this has been cushioned by government stimulus. At the same time there is a continuing boom in housing and construction (more stimulus).
According to an Australian economist John Adams, in a Youtube video, this is a recipe for disaster. I can see his point with the housing market and prices going up, and people able to borrow more than ever. When interest rates go back up, or household income is impacted by underemployment, people will have difficulty servicing their debt.
John says the reason for this is lack of macroeconomic system checks in our institutions. Housing prices are not considered when the Reserve Bank of Australia adjusts interest rates. Not considered in the consumer price index (used to measure inflation). Not our problem, say APRA, who regulate the banks.
Apparently the Kiwis have just introduced a measure to avoid this risk. The Reserve Bank of New Zealand looks at the price of housing before altering rates. John comments that New Zealand is ahead of Australia in this respect. Perhaps not for much longer.
ABC News, April 2021 – Housing boom may be halted by regulators or economic trends, analysts warn.
ABC News, September 2020 – Australian recession confirmed as COVID-19 triggers biggest economic plunge on record.
The New Daily, March 2021 – Alan Kohler: The economic recovery is a work in progress