Alarming reason living standards could fall

Perth Now

14 hours ago

The World Bank has sounded the alarm predicting global growth is on track for its weakest year since the global financial crisis and worst decade since the 1960s, but Australia could once again prove to be the lucky country.
Analysis released this week by the World Bank predicts global growth will slow to 2.3 per cent in 2025, down from 2.8 per cent this time last year. This is a downgrade of 0.4 per cent since the start of the year.
If the World Bank's forecasts come true, this would be the weakest period outside of the worldwide recessionary periods of the GFC from 2007-2009 and the Covid pandemic at the beginning of the decade. Living standards could fall if the World Bank's forecast comes true. NewsWire / John Appleyard Credit: News Corp Australia
This follows similar downgrades to growth from the International Monetary Fund, which in April said global growth would slump from 3.3 to 2.8 per cent, while expecting Australia's GDP to drop to just 1.6 per cent.
While the OECD also believes growth will slow from 3.3 per cent in 2024 to 2.9 per cent in both the 2025 and 2026 calendar year.
The World Bank predicts this could impact everyday people for years to come.
'Without a swift course correction, the harm to living standards could be deep,' the report said.
'International discord – about trade, in particular – has up-ended many of the policy certainties that helped shrink extreme poverty and expand prosperity after the end of World War II.
'This year alone, our forecasts indicate the upheaval will slice nearly half a percentage point off the global GDP growth rate.'
WHAT DOES IT MEAN FOR THE AUSTRALIAN ECONOMY?
Australia is not immune to any slowdown in global growth, but it is unlikely to drag us into a recession.
AMP chief economist Shane Oliver told NewsWire weaker global growth would affect the Australian economy in three main ways.
'Firstly, weaker global growth means less demand for Australia's exports in terms of volume,' he said.
'Secondly, it will potentially mean lower commodity prices which means lower national income.
'Thirdly, a hit to confidence. People in Australia hear what is going on in the rest of the world which means they are less likely to spend whether they are a consumer or a business.' Australian consumers could spend less due to an economic stressful time. Credit: News Corp Australia, NewsWire/ Monique Harmer
Previously in times of economic stress, the Australian economy has been bailed out by its commodities as other nations stimulate their economy, but this time around Dr Oliver says 'it gets harder' as the world won't stimulate the economy as hard.
'The IMF, OECD and the World Bank have all revised down growth but it's not negative, so it's not a debilitating shock or a global recession in a technical sense,' he said.
'There's no need for the government or the RBA to come to the rescue like it did during the GFC or the pandemic.'
Even though the Australian economy as a whole is tipped to slow, with Dr Oliver forecasting growth of around 1.6 per cent for the calendar year, there is a bright spot for homeowners.
'I think it is likely the Reserve Bank will likely cut interest rates more than they would've thought this year and why growth in Australia won't get above 2 per cent,' Dr Oliver said.
WHY IS GROWTH SLOWING
Without naming names, the World Bank is blaming the fallout from US President Donald Trump's trade policies.
As part of his American first initiative, Mr Trump announced a raft of tariff policies across sectors and countries.
On April 2 Mr Trump announced 'cheating' countries who ran a significant trade surplus with the United States were hit with 'reciprocal tariffs', while every country including Australia is being slapped with the 'base tariff' of 10 per cent.
Through negotiations, these tariff rates have changed, but countries including China are facing total tariffs of around 55 per cent.
While the entire 138-page report fails to mention US President Donald Trump's tariff policy, it makes clear trade tensions, global instability and a reversal of current trade policies are the main reasons why they are sounding the alarm.
'The forces behind the great economic miracle over the last 50 years which drove more than one billion people out of extreme poverty have swung into reverse,' it wrote.
In order to correct the course, the World Bank says countries need to rebuild trade relations.
'The evidence is clear: economic co-operation is better than any of the alternatives – for all parties,' the World Bank's report said.
'Our analysis suggests that if today's trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, 2025, global growth could be stronger by about 0.2 percentage point on average over the course of 2025 and 2026.'