Australia’s ailing productivity rate the ‘real challenge’ the nation needs to tame to defeat cost of living crisis

Australia’s ability to overcome the cost of living crisis depends on whether it can overcome one “real challenge” in the coming decade.

This is the claim of a top analyst as the nation faces the fifth cash rate hike of the year in November.

Australia’s inflation rate continues to be elevated at 4.3 per cent as productivity, which measures GDP against the number of hours worked, goes backwards.

This has prompted a warning from JP Morgan Asset Management’s managing director Kerry Craig about how productivity challenges will be crucial over the coming 10 years.

“That productivity has been weak and we want to see that enhancement come through in the years to come, but it does take time for that to materialise,” Mr Craig told News24 Business Now.

“Maybe there’ll also be some uplift from artificial intelligence … but ultimately, unless you have that productivity, you do get persistence in inflation in the economy and a relatively weak economic growth backdrop.

“That is a real challenge for the Australian economy over the coming decade.”

Australia’s productivity rate declined 0.2 per cent in the year to the June quarter.

It came as GDP lifted 2.1 per cent over the same period while inflation continued to surge.

Australia’s dire productivity sparked a warning from HSBC chief economist Paul Bloxham that the nation could head into recession.

“I think there’s some chance, at least, that we might tip into an outright recession,” Mr Bloxham told Business Now.

“We haven’t got that as our central case, but I’ve avidly been talking about the idea that we think there is a 50-50 chance that we could – particularly in the short run.”

He went one step further to argue that Australia’s dire productivity was limiting how much the economy could grow without inflation surging, meaning a downturn was necessary.

“This is the downturn we have to have. We have to have a downswing,” Mr Bloxham said, referencing Mr Keating’s “recession we had to have” comment about the early 1990s recession.

“There’s really no other way to get inflation down, given the productivity growth is weak and the economy has a much lower speed limit that it’s had in the past.

“Growth has to slow quite a lot.”

Mr Bloxham’s point contrasts with remarks from RBA chief economist Sarah Hunter who was adamant Australia was not heading towards a recession.

“At the moment our assessment is that none of those indicators are suggesting that the economy is in, or is heading into, a recession in the near-term,” Ms Hunter said during Senate estimates on Wednesday.