“It doesn’t feel (buoyant) because so far, the strength is concentrated in jobs rather than wages. And strength in jobs is good news for the few, whereas the bad news still here in wages is bad news for the many,” says Deloitte.

Thus while the country has been given a global pay rise the workforce hasn’t.

‘Strength in jobs is good news for the few, whereas the bad news still here in wages is bad news for the many.’

Deloitte

Prices have shot up ahead of wage growth and this has coincided with the government’s consumer and business stimulus being removed from the economy and the beginning of a period of rising interest rates. And whether this strong labour market will remain long enough to garner wage growth remains to be seen.

“The current strength won’t last. Unemployment can’t go much lower, and commodity prices can’t go much higher. We’ve ridden the current wave spectacularly well, but it has taken us about as far as it can,” Deloitte says.

“Now comes the tricky bit. Commodity prices will fall, and interest rates will rise. Neither should enormously damage Australian economic growth, but the best of this cycle may soon be behind us.”

It argues that the rapid rise in interest rates won’t do much to lower inflation because while it might reduce demand for goods it won’t increase their supply.

Consumers are not the only group not feeling the Lucky Country joy. The supply chain crisis and the massive rise in the price of energy have been disproportionately felt by the manufacturing and utility sectors while the building and construction industry, wholesalers and retailers are having to grapple with the balance between passing on higher costs to customers or lower dividends to shareholders.

On a more global scale, the supply chain and energy shocks impacting the world economy bring into sharp relief the debate around “deglobalisation”.

The benefits and disbenefits of globalisation have long been debated. While there is recognition that free trade has improved productivity and economic growth, how that growth has been unevenly distributed has been the subject of justified criticism.

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There is little doubt that COVID has contributed towards deglobalisation as sovereign nations have been forced to confront the cracks in our economic interdependency as security of supply has affected everything from manufactured goods to pharmaceuticals.

Deloitte argues the seeds of deglobalisation were sown in 2016 when the US launched a trade war against China. “That led to the sharpest increase in effective US tariff rates since the 1930s. China, too, despite giving lip service to the benefits of globalisation, imposed restrictions on cross-border capital flows and encouraged greater autarky in the production of goods. At the same time, populist ideology grew in popularity in multiple countries, offering a counterpoint to the argument for globalisation,” it argues.

These seeds have been turbocharged by the war in Ukraine and COVID, particularly the quest for energy security.

Deloitte argues the benefits of globalisation have not disappeared because companies will still be looking for the lowest cost goods delivered in the most efficient way.

If COVID and the war amount to more than just a speed bump in globalisation there will be ramifications – potentially higher costs and lower innovation.

As such it could play into longer-term growth for the global economy.

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