The US economy may be on a tear but that didn’t stop American voters turfing out the Democrats in last week’s presidential elections.
Does that mean the Albanese government faces a similar electoral backlash when we go to the polls in 2025?
How does the Australian economy compare with the US?
By gross domestic product, America’s 2.8% annual expansion clip in the September quarter had few peers among rich nations. Australia’s third-quarter GDP data won’t land until 4 December and growth will probably slightly exceed the 1% pace for the April-June period.
The US and Australia shared a 4.1% unemployment rate in October. Consumer price inflation readings from September were close, too, at 3% for the US and 2.8% in Australia (even if the Reserve Bank watches core inflation most hawkishly).
However, the health of federal budgets notably diverged. The US deficit was an eye watering 6.3% of GDP in 2023 and is on track to reach 6.8% this year, the Economist says, with bigger blowouts likely given Trump’s pre-election promises.
Australia notched up consecutive budget surpluses (as measured by underlying cash balances) of as much as 0.9% of GDP (for the 2022-23 year). The 2024-25 budget deficit is forecast by Treasury to be 1% of GDP, with shortfalls ranging from 0.8-1.5% in the coming three years.
Australia’s current account deficit, running at 1.5% of GDP, is also about half the US’s 3.4%, the Economist’s data shows.
How gloomy were Americans?
Pre-election polls suggested Democrats’ vice-president Kamala Harris neck and neck with her Republican rival Donald Trump. On the economy, though, surveys such as Harvard University’s Harris (no relation to the candidate) poll, detected longstanding discontent.
Views the economy was “weak” exceeded those thinking it was “strong” from mid-2021 – about the time the US and other economies started to rebound from the Covid shutdowns.
By last month, the share of respondents saying they felt their personal financial situation was “getting worse” was about 47%. Those saying conditions were “improving” has nudged higher in recent months – including as the US Federal Reserve started cutting interest rates – but still lagged at 28%, Harvard found.
That sentiment proved important, with inflation and the economy make up two of the top three issues for voters.
What mood are Australians in?
Expect a lot more polls about Australians’ thoughts on the economy as elections loom, such as Essential’s survey last month.
Respondents to that poll were worried about their ability to pay for groceries and essentials (67%), energy (65%), health (61%) and housing (59%). Education (53%) and transport (51%) also attracted concerned response from more than half of voters.
Still, sentiment among consumers has been rising steadily in recent months and is nearing three-year highs, according to the latest Westpac/Melbourne Institute survey.
Westpac’s chief economist, Luci Ellis, says the impact of a couple of years of high inflation may linger.
“People really hate inflation,” Ellis said. “They really hate their living standards being squeezed, and they hate the fact that how prices of things are so much higher than they were just a few years ago.”
Real wages might be up for a fourth quarter in a row, but it’s a long way back for real disposable household income after steep recent falls, according to the Reserve Bank.
Are things looking up lately?
Stage-three tax cut revisions – a broken election promise net beneficiaries seem to have forgiven the Albanese government for – mean some people “are feeling better off now that they have got a bit more money in their pockets”, Ellis said.
While they might remain “somewhat grumpy about their economic circumstances, [they are] not in the absolute doldrums the way they had been over the previous two and a half years”, she said.
But RBA governor, Michele Bullock, accepts many are unhappy about the level of prices. They won’t go back without a severe deflationary period, which wouldn’t be pleasant.
On the bright side, “interest rates haven’t risen for a year, so that’s helpful”, Bullock told reporters last week.
Employment too is “remaining really strong”, she added (a view generally reinforced by October’s labour market data). Her “expectation” is that the share of households struggling to meet their mortgage repayments “wouldn’t necessarily rise a lot over the coming year” provided those factors “remain steady”.
Then why isn’t my bank balance healthier?
EY’s chief economist for Oceania, Cherelle Murphy, agrees that while things might not be getting worse, the improvements are “not particularly substantial”.
Even if real wages might be showing some modest gains, each time households get a new insurance bill or sum up their grocery spending, “it’s still a number in which they going, ‘wow!’’
The moderating inflation rate, too, doesn’t really account for the cost of housing. (The ABS counts the purchase of new things, such a freshly built house, but not one owner selling an established house to another.)
On that score, the pain has been considerable for those outside the market trying to buy in, in both Australia, the US and a lot of other nations too.
Having interest rates hovering at 13-year highs also means those on mortgages aren’t getting much relief, even if headline CPI is back down to 2.8%. Employee households – many of which have loans, saw their annual cost of living rise 4.7% in the year to September, the ABS said.
Whether it’s not being able to afford a house where they grew up, or feeling vulnerable to the whims of landlords with rental vacancy barely above 1% in most of the country, there “hangs a big cloud over any of the economic progress we’ve made”, Murphy said.
