Australia's decade of mediocrity threatens to look like Japan's stagflation

According to Bloomberg, Australia's lagging growth metrics are reminiscent of Japan's still-occurring era of stagnation.

Key highlights

As noted by Bloomberg, Australia's domestic economy is seeing ten-year growth averages at their lowest levels since 1986, and inflation levels that remain at their weakest since the 1970s.

Australian growth and employment figures have both improved in 2018, but wages remain frustratingly low and interest rates remain trapped in the basement with Australian workers taking pay rises that are nearly half of the 4% wage rate as workers favour job security over increasing wages, keep consumption growth constrained, and Aussie consumers continue to spend more of their cash at retailers that discount heavily, further pressuring firm profits to the downside.

Adding that to a decade-long recovery from a global financial crisis, and a 25-year long rise in household debt-to-income ratio, and Australia's under-utilization rate of 13.3%, the highest in almost a hundred years as more Australians seek more working hours than ever before, and the domestic Aussie economy finds itself in a tug-of-war between supressed businesses that can't raise prices any faster, and workers can't spend more under their debt burdens.

“Once this becomes entrenched, it gets hard to break out of it -- as Japan has found,” said Shane Oliver, chief economist at AMP Capital Investors Ltd. in Sydney. “We’re not quite as bad as them because they’ve had deflation and zero rates, but there is a risk that the longer this goes on the harder it will be to get inflation back up to average. The workforce seems to have become content with lower wages,” Oliver said. “It’s become part of the furniture, it’s become accepted. That’s what happened in Japan.” - Bloomberg

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