Scott Morrison has warned that Australia is not immune from the negative global economic fallout from Russia’s invasion of Ukraine.
The prime minister told a business conference in Perth the world is facing the biggest energy shock since the 1970s.
“That is likely to depress global growth and we know higher oil prices means greater pressure on family budgets at the petrol bowser,” Mr Morrison warned the Chamber of Commerce and Industry WA.
His comments came as new data suggested the Australian economy is only just heading back to its long-term trend after being hit by the COVID-19 Omicron variant in the early stages on 2022.
The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, rose from minus 0.5 per cent in January to minus 0.25 per cent in February.
“While the growth rate lifted in February, the latest read remains in negative territory but only slightly below trend,” Westpac chief economist Bill Evans said.
The long term annual growth rate is considered to be around 2.8 per cent.
But Mr Evans says in contrast to this cautious signal from the leading index Westpac is expecting strong above-trend growth in 2022, largely due to the aftermath of extraordinary emergency policy measures taken during the pandemic.
Australian households have accumulated around $250 billion in excess savings, providing considerable spending power.
“Not surprisingly, the leading index is likely to be understating the delayed impacts of these extraordinary emergency policies,” Mr Evans said.
The Reserve Bank of Australia also believes the economy remained resilient in the face of the Omicron variant and activity is expected to pick up.
But the war in Ukraine has cast a cloud over the inflation outlook.
In the minutes of its March 1 board meeting released on Tuesday, the RBA noted that while inflation was still lower than in many other countries, underlying inflation in Australia was expected to increase further over coming quarters.
However, it said there were uncertainties about how persistent the pick-up in inflation would be given the war in Ukraine and recent developments in global energy markets.
In the meantime, the board stuck to the script of being patient before lifting the cash rate as it monitors how the various factors affecting inflation in Australia evolve.
While the RBA forecasts the unemployment rate to fall below four per cent this year, and to levels not seen since the early-to-mid-1970s, wages growth is expected to pick up only gradually.
However, board members agreed the risks to the outlook for wages growth were skewed to the upside.
The Australian Bureau of Statistics will release its labour force report for February on Thursday, which economists expect will see the unemployment edged down to 4.1 per cent from 4.2 per cent.
This would be the lowest level since 2008.
The ABS released its latest household impact from COVID-19 survey for the period February 9 to 18.
It found around one-quarter of Australians reported that the job situation of someone in their household had changed in one or more ways in the previous four weeks due to pandemic.
Nearly a quarter of these had concerns about contracting COVID-19, while 20 per cent reported an increased workplace demand and the same proportion blamed it on the absent work colleagues.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)