Australia could spiral into political and social unrest similar to the violent protests unfolding in Sri Lanka as inflation soars, a top economist has warned.
Political and economic commentator John Adams cautioned trillions of dollars of debt and surging inflation had put Australia on a crash course for economic disaster.
‘A lot of Australians think that we have a standard of living which we earn or we are entitled to,’ Mr Adams told the In the Interests of the People YouTube show hosted by Digital Finance Analytics principal Martin North.
‘The last 20 to 25 years we have lived a particular way in Australia using a big international credit card and in net terms, we owe the world $1.2trillion and in gross terms it’s about $2.5trillion.
Political and economic commentator John Adams cautioned trillions of dollars of debt and surging inflation had put Australia on a crash course for economic disaster
Australia could spiral into political and social unrest similar to the violent protests unfolding in Sri Lanka, a top economist has warned.
‘That’s why we live the way we live. Not because we produce goods and services and sell them to the world, it is because we are living beyond our means.’
The comparison may seem far fetched with Australia’s wealth per person being 15.7 times higher than Sri Lanka – which is also grappling with 45 per cent inflation after it banned agricultural chemical fertilisers in a bid to go organic.
But Mr Adams added Australia could ‘easily go into a Sri Lankan situation if things were to unravel’ with the country plagued by protests for the past 100 days.
Protests erupted across Sri Lanka following the collapse of the country’s economy, soaring inflation, severe food and fuel shortages, and ongoing blackouts.
Gotabaya Rajapaksa, 73, was forced to resign as president after he and his family were accused of siphoning money from government coffers for years and his administration hastening the country’s collapse by mismanaging the economy.
He had also banned chemical fertilisers in a bid to make farming organic, which led to a surge in food prices.
Rajapaksa fled to Singapore, after protesters last week stormed his mansion in the capital Colombo.
As recently as 2019, the World Bank had classified Sri Lanka as an upper middle-income country but that began to unravel in 2020.
The country’s rapid decline was all the more shocking because, before the recent crisis, the economy had been expanding, with a growing, comfortable middle class.
Mr Adams said surging inflation was a massive factor that sparked the widespread protests as millions were unable to afford basic necessities.
Mr Adams warned Australia was grappling with its own inflation crisis with cost-of-living soaring and prices for petrol and groceries skyrocketing
Inflation is expected to reach seven per cent as Australians endure soaring prices at the supermarket
‘The situation has unraveled in Sri Lanka for June, where inflation has now peaked at 54 per cent and for food, in particular, inflation is running at 80 per cent,’ he said.
Australia versus Sri Lanka
INFLATION: Sri Lanka had a 45.3 per cent headline inflation rate in May, double March’s 21.3 per cent and up from 6.1 per cent in May 2021
Australia had a 5.1 per cent inflation rate in March – the fastest pace in 21 years
WEALTH: The World Bank last year calculated that Australia had a per capita gross domestic product of $US59,934 compared with just $US3,814 for Sri Lanka
‘And so basically if you’re poor in Sri Lanka you can’t eat and we’ve seen a huge 75 per cent of the Sri Lankan population has basically reduced their food intake over the last two months.
‘And so people are very nervous about a humanitarian crisis happening.’
The World Bank last year calculated that Australia had a per capita gross domestic product of $US59,934 compared with just $US3,814 for Sri Lanka.
Sri Lanka’s headline inflation rate in May was 45.3 per cent compared with 6.1 per cent a year earlier, figures from its own central bank showed.
Inflation doubled in just two months, up from 21.3 per cent in March.
Mr Adams warned Australia was grappling with its own inflation crisis with cost-of-living soaring and prices for petrol and groceries skyrocketing.
Treasurer Jim Chalmers warned in June that the inflation rate will be ‘certainly higher’ than the 5.1 per cent rate in the March quarter and will get worse.
ANZ is expecting June quarter inflation data, due out on July 27, to show the consumer price index soaring by 6.3 per cent, which would be the steepest in 32 years.
The major banks are expecting the Reserve Bank of Australia to hike rates in August, September and November.
This would add to the increases in May, June and July of 1.25 percentage points – the steepest since 1994.
The Commonwealth Bank, Australia’s biggest home lender, is expecting a nine-year high RBA cash rate of 2.6 per cent by November.
Most developed nations are battling high inflation largely due to supply chain disruptions, the large amount of money printed during the Covid pandemic and high energy prices due to Russia’s war on Ukraine
Most developed nations are battling high inflation largely due to supply chain disruptions, the large amount of money printed during the Covid pandemic and high energy prices as Russia’s war on Ukraine pushes up petrol prices.
Reserve Bank governor Philip Lowe has foreshadowed seven per cent inflation in 2022, which would be the highest since the 7.7 per cent rate in the June quarter of 1990.
‘The Reserve Bank has said something around seven per cent and that doesn’t seem to me to be wildly off the mark,’ Dr Chalmers said.
But far from being an economic disaster, Australia’s unemployment rate in June fell to a 48-year low of 3.5 per cent, down from an already low 3.9 per cent in May.
Treasury is expecting Australia’s gross government debt to climb above $1trillion in 2022-23, making up 44.6 per cent of gross domestic product following $300billion worth of Covid stimulus measures when the pandemic began in 2020.
Sri Lanka owes billions of dollars to China while Australia has China as its biggest trading partner.