Inflation, rising interest rates and other strains on household budgets will not halt South Australia’s economic recovery following the COVID-19 pandemic, a new report has found.
The latest economic briefing from the University of Adelaide’s SA Centre for Economic Studies says consumer spending has grown strong over the past 12 months along with an increase in demand for housing.
But it says with household and public sector consumption expected to weaken, the state’s export performance will need to improve to compensate.
“We expect that the South Australian economy will continue to grow at an above-trend pace in the short term,” said Jim Hancock, Director at the centre.
“Household spending growth is likely to slow in response to cost of living pressures,” Hancock said.
“But reopening of the nation’s borders will facilitate a recovery in overseas migration which will provide a boost to population growth,” he said.
“It will also help to relieve the inflationary pressures that come from very tight labour market conditions.”
The latest report also found that, while the volume of SA’s exports had not increased over the past year, values had been boosted by strong commodity prices.
It said the South Australian labour market remains strong by historical standards, with the rise in employment levels supporting household incomes.
Construction activity also remained strong but had been held back by shortages of building materials and skilled labour.
As to the global outlook, Hancock said any worsening of the war in Ukraine could slow growth amid rising interest rates to slow inflation.
“In Australia, the Reserve Bank faces a delicate balancing act with monetary policy. It needs to return real interest rates to a neutral level with some haste,” he said.
“But borrowers have become accustomed to cheap credit and raising rates too far increases the risk of defaults and a major downturn in the housing market.”
with news from AAP