S&P Global’s chief economist Paul Gruenwald has said that central banks, including Australia’s Reserve Bank, were likely to keep interest rates elevated for some time to rein in inflation and prevent growth from undershooting. He said that monetary authorities were “a bit too sanguine about inflation”, given the scale of the Covid-related fiscal stimuli and the spike in energy prices after Russia’s invasion of Ukraine.
Gruenwald said that a “good surprise” has been the economic resilience of Australia, the US and elsewhere despite 400-500 basis points of interest rates hikes. He said that a soft landing for Australia would mean a drift in the jobless rate up from 3.7% in July to 4.5%. He added that employers were keen to retain staff, as it was costly to let people go, find workers, and run below capacity.
The dash to decarbonise and the impact on energy markets
Gruenwald also discussed the challenges and opportunities of the transition to a low-carbon economy, which he said was “the biggest structural change we’ve seen in our lifetimes”. He said that the dash to decarbonise was driven by three factors: public opinion, policy, and technology.
He said that public opinion was shifting towards more climate action, especially among younger generations. He said that policy was also becoming more ambitious, as evidenced by the recent COP26 summit in Glasgow, where countries pledged to limit global warming to 1.5 degrees Celsius above pre-industrial levels. He said that technology was also advancing rapidly, with renewable energy becoming cheaper and more efficient.
However, he also noted that the transition was not without risks and uncertainties. He said that the energy market was facing a supply-demand imbalance, as fossil fuels were being phased out faster than renewables could replace them. He said that this could lead to higher energy prices, volatility, and shortages, as well as geopolitical tensions.
He said that Australia had a unique opportunity to become a leader in green hydrogen production and export, given its abundant renewable resources and proximity to Asian markets. He said that green hydrogen could be a game-changer for decarbonising hard-to-abate sectors such as transport and industry.
The rise of India and the implications for global trade
Gruenwald also highlighted the emergence of India as a major economic player and a potential counterweight to China’s dominance in Asia. He said that India had shown remarkable resilience during the pandemic, bouncing back from a severe contraction in 2020 to a robust recovery in 2021.
He said that India had several advantages over China, such as a younger and more diverse population, a more democratic and open political system, and a more dynamic and innovative private sector. He said that India also had room for improvement in areas such as infrastructure, education, health care, and governance.
He said that India’s growth prospects were bright, as it was expected to become the third-largest economy in the world by 2030, behind China and the US. He said that India’s rise would have significant implications for global trade patterns, as it would increase its demand for imports and exports, as well as its influence in regional and multilateral forums.
He said that Australia could benefit from strengthening its ties with India, as both countries shared common values and interests. He said that Australia could offer its expertise in sectors such as agriculture, mining, education, tourism, and services to India’s growing middle class. He also said that Australia could collaborate with India on strategic issues such as security, climate change, and digitalisation.