Something Terrible Is Happening in the Australian Economy _ @visualeconomiken.

Idyllic beaches, kangaroos hopping around and jaw-dropping salaries. When you think of Australia, you imagine sunshine, quality of life and an economy that looks like something out of an advertisement. And keep in mind this is no coincidence, because Australia is literally sitting on a goldmine. Well, iron, coal and gas reserves. The fantasy of any industrial power. In the 1980s, they did their homework. They liberalised the economy, opened up the markets and jumped on the globalisation bandwagon. The result, one of the strongest economies in the developed world. What's more, their location is a huge advantage, right next door to Asia. That made it the commodities supermarket for China, India and Japan. And what happened in 2008, when half the planet was burning in the financial crisis? Well, Australia pulled off a championship plot twist. While everyone else was entering a recession, they were riding a supercycle of commodities. They exported like crazy and came out unscathed. With an unbeatable primary sector, low public debt, fiscal surpluses and a luxurious GDP per capita, Australia earned a reputation as the model student of capitalism. That's why what you're about to see in this chart is going to leave you speechless. As you can see, since approximately 2022, the standard of living in Australia has fallen sharply compared to other developed countries. In 2022, Australians changed course. The Labour Party, led by Anthony Albanese, took power. It was the first left-wing government with a majority since 2007, after three terms of conservative rule. And what's happened since then? Well, the economic data. Let's just say it's not exactly encouraging. At the end of 2024, the disposable income of Australian families plummeted. And not a little. We're talking about the worst figure in the entire OBCD. This is particularly painful when compared to other English-speaking countries. Australians, clearly, were not at all happy with how this experiment was turning out. The situation is so bad that some experts are already talking about a lost decade. According to several forecasts, pre-Labour living standards will not return until 2030. In other words, forget about expensive brunches in Sydney. At this rate, you won't even be able to afford toast with Vegemite. And as if that weren't enough, SNP, yes, the agency that rates public debt, has dropped a bombshell. Australia could lose its coveted AAA rating. A rating it has held since 2003. And we all know what happens when the agencies start to have doubts. Debt skyrockets. So no, the Australian economy is not in a position to boast. But now comes the important part. What on earth is going on? Why has household income taken such a nosedive? And is there any way to turn this mess around? That's exactly what we're going to take a look at in this video. 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At first glance, the price of electricity in Australia doesn't seem crazy, it's just slightly above the OECD average. Nothing dramatic, right? But clearly, the devil is in the details. Because if we adjust that price to the cost of living, the picture changes dramatically. Australia becomes one of the developed countries with the most expensive electricity in the world. In other words, plugging in appliances in Sydney hurts more than in Paris, Toronto, or even New York. As you can see, adjusted for the cost of living, electricity in Australia is the third most expensive among developed countries, behind only Germany, the United Kingdom, and Italy. Just like in European countries, Australia wanted to start an environmentally friendly transition to switch from energy sources such as natural gas to renewable ones. This transition accelerated particularly after 2022, when the Labour government took control of Parliament. And since it needed the support of the Greens, it wanted to do everything quickly and hastily. The results? Well, they can be clearly seen with news stories like this one. Australian miners and smelters call for state aid during energy transition For now, the Auburnese government's big energy gamble is not going according to plan. And in Australian industry, especially in sectors such as smelting and mining, the bad vibes surrounding this environmentally friendly transition are beginning to be felt. An example? Glencore, the British multinational, has thrown in the towel. It says its smelting plant in Queensland is no longer viable. The reasons? High energy costs, high wages, and a shortage of raw materials. In this case, copper. A lethal combination. Because naturally, if copper is already scarce, imagine extracting it when electricity costs an arm and a leg. It's like looking for gold with a borrowed shovel. And this is not an isolated case. Tamargo, an aluminium smelter that consumes 10% of all the electricity in New South Wales, is also on the brink. So much so that the regional government is already looking into how to rescue it. And keep in mind, we're not talking about four workers in hard hats here. The mining sector in Australia accounts for 12% of GDP. It's one of the pillars of its economy. If that falters, everything falters. But it's not just heavy industry that is suffering. The agricultural sector is also up to its neck in it. Farmers and stock breeders, particularly hard hit by the government's green policies, have shown fierce opposition. So much so that they have become one of the key voting bases for the opposition. For the time being, the Australian government was trying to limit the sector's complaints through subsidies. But this policy is unlikely to be sustainable forever. On top of that, with all this renewable energy hype, almost every household installed solar panels on their rooftops. Cheap and clean energy. What could possibly go wrong? Well, what went wrong was that this large number of solar panels caused an unexpected problem. Too low a demand for conventional energy. And what happens when demand is so low? Well, the system is at risk of becoming overloaded, causing massive blackouts across the country. I'm sure more than one of you is familiar with what we're talking about. But as if these problems with the electricity grid weren't enough, it turns out that Australia's large volume of trade with China is also a double-edged sword. On the one hand, exporting without barriers is great. But on the other, the local market has been flooded with much cheaper Chinese products. This is especially true in foundries and steel mills. Some would call it unfair competition. Others would call it the reality of the free market. And yes, this dependence has very real consequences. During the pandemic, KFC had to replace lettuce with cabbage in its sandwiches. Why? Because the price of lettuce shot up to $12 per head. Yes, one head of lettuce. Prices have since cooled, but it's a telling example of the pricing pressures we've seen in recent years. Faced with such a scenario, there are already voices among business leaders and politicians proposing radical measures, nationalizing the most vulnerable companies to prevent them from going bankrupt or risk ending up in the hands of foreign investors. They don't want a strategic smelter to end up with a Chinese owner, for example. And even less so all their raw materials, which have been the jewel in Australia's crown for so many years. But nationalizing unproductive sectors doesn't come cheap. And even less so if those sectors were already less competitive than their international rivals. The risk is clear. It could drag down the country's overall productivity even further. And speaking of productivity, here lies perhaps the real Achilles heel of the Australian economy. Its staggering productivity slump. As you can see, Australia's productivity is going downhill fast. Just like its GDP per capita. In the last quarter of 2024 alone, productivity in Australia fell by 1%. It's just one piece of data, yes, but it fits perfectly with the rest of the warning signs that the Australian economy has been giving. And this contrasts with its golden age. Between 1993 and 2016, productivity grew at a steady rate of almost 2% per year. That was the magic formula that made Australia one of the richest countries with the highest standard of living on the planet. But since then, nothing. Zero growth. And since 2022, there has been a direct decline. And naturally, if productivity stagnates or falls, it stands to reason that GDP per capita and household income do the same. Because if you produce less, you distribute less. And you have less money available. It's that simple. Now then, why has productivity plummeted? Well, one of the key factors is immigration. And not just any immigration, but low-skilled immigration. Australia has been a magnet for immigrants since the 21st century. Since 2000, more than 4 million people have arrived in the country. A veritable demographic tsunami. The problem? Although some came with training, many others did not. And the Australian government has failed to give them the tools to integrate them properly into the labor market. And of course, in an economy like Australia's, which is so dependent on sectors such as mining, providing workers with better tools is key to increasing production. The result of all this? Higher population, more workers, but no increase in productivity. Because clearly, for that population growth to work, you need more housing, better infrastructure, and an economy capable of absorbing them. And that's where Australia has slipped up. Cities like Sydney and Melbourne are becoming increasingly saturated, mainly because the population is concentrated in very few places. Housing prices have skyrocketed, public transportation is stretched to its limits, and people are starting to get angry. And rightly so. But that's not all. The other side of the problem lies in the Labour government's labour policy. Australia has always had a near-perfect labour market. Low unemployment. Full employment. Even during the pandemic, unemployment barely touched 7%. The norm was around 4%. But since 2022, the Urbanese government has gone down the path of public spending and inflated hiring in the state sector. And what happens when the state starts hiring as if there were no tomorrow? Well, resources are diverted, productivity suffers, and the private sector engine stalls a little more. And pay attention, because if we compare the growth in public and private employment since 2019, the difference is truly striking. As you can see, after a slight decline in 2020, public sector hiring has far outpaced that of the private sector. Since 2022, 82% of all new jobs created in Australia have come from the same place, the public sector. Health, administration, education, the big employers. And of course, with the massive influx of immigrants, these services had to be strengthened, no matter what. But here's the problem. In just a decade, the weight of public employment has gone from 12.5% in 2014 to almost 18% in 2024. And many experts are already raising their eyebrows, because this dependence on the public sector is not exactly the path to efficiency. On the one hand, public employees, and particularly service-based economies, tend to have lower productivity. On the other hand, maintaining this massive hiring spree could cause a hole in the public accounts. Deficits everywhere, both in the federal and state governments. And this in a country that, until recently, boasted enviable low public debt. All these factors have led the Reserve Bank of Australia to lower its economic growth forecast, which means lower incomes for families and lower living standards for citizens. Well, given this explosive cocktail, Australia arrived at the May 2025 elections. Anthony Orbanese was running for re-election, and the truth is that everything seemed to be against him. His opponent, Peter Dutton, had it in the bag. Skyrocketing cost of living, housing chaos, pressure on the healthcare system, and on top of that, Orbanese had just lost a key referendum. It was a referendum that sought to recognize indigenous peoples in the constitution and give them their own parliament. A personal project that ended in failure. The opposition's criticism was direct and forceful. Orbanese inherited an economy with full employment, solid growth, and healthy finances. And he did everything but manage it. With this background, no one would have bet a single Australian dollar on his re-election. So what do you think happened? Well, pay attention because the news is going to surprise you. The left wins a landslide victory in the Australian elections with the help of the Trump factor. In the English-speaking world, Trump continues to be a polarizing figure, to put it mildly. And that has effects that reach far beyond the United States. We already saw this in Canada, with the surprising victory of Mark Carney and the Liberal Party. And in Australia, something similar happened. The electorate associated Peter Dutton with a kind of Australian Trump. And the result was a massive shift to the left. The centre-right suffered a historic defeat. So historic that Dutton himself, after 24 years in parliament, lost his seat. A real disaster for a man who saw himself in power after several years of coming close. So now, Antony Albanese has four more years to try to get things back on track. Four years to ensure that these worrying figures don't end in disaster. But it won't be easy. On top of the problems of productivity, housing and energy prices, there's now a trade war. Ironically, Donald Trump has been one of the reasons Albanese has been given an extension. But he could also become one of his biggest headaches. The US president has arrived with 25% tariffs under his arm, including for Australia. As if that weren't enough, anything that involves tension with China directly affects Canberra. Because, let's not forget, China is its largest trading partner. And Trump has already made it clear that there won't be any hugs with Beijing. So Albanese has rolled up his sleeves. First step, calling a summit with governments, businesses and unions to figure out how on earth to fix the energy problem. And while setting up a commission is usually the perfect way to drag a problem out forever, at least it shows he actually cares about his country's issues. Second, he unblocked a key gas project with a 45-year extension. This decision has angered some environmentalists, but has been applauded by big business. All this while announcing a massive program, Future, made in Australia, with an investment of more than $22 billion for manufacturing, energy transition and the knowledge economy. Will it work? Will Albanese manage to turn the situation around? We don't know. But it's clear that this time he's coming in with his eyes wide open and with the shock of the polls still very much in mind. In any case, now we want to ask you, did you know that Australia was going through these difficulties? Do you think the Labour Party will have learned its lesson and revived the economy? Is Australia going through a temporary crisis? Or are we witnessing the end of one of the great success stories of the developed world? You can leave me your answers down in the comments. And as always, don't forget that here on Visual Economic we release new videos every week so subscribe to this channel and click on the bell icon so you don't miss any of our updates. If you like this video, click like, take care and I'll see you next time.