The four things that will shape 2024

The first is the cost-of-living crisis which will have big ramifications economically, socially and politically the longer it goes on.

Economically, periods of high inflation are often followed by recessions. Central banks raise interest rates to cool-off demand for goods and services but, if they go too far, risk killing the patient.

The longer inflation remains elevated the harder it is to achieve a soft landing. This is a big problem given the "higher for longer" forecasts from most economists and central banks.

Socially, the cost-of-living crisis is worsening inequality and flaming tensions. Those on low incomes are hurting. Those on high incomes are still spending. Those who own their home are seeing their wealth go up. Those who don't own their home are seeing their rents go up.

Politically, rising inflation has seen a dangerous narrative crystalise for the Albanese government: that it's spent all its time in government campaigning for a deeply unpopular Voice to Parliament while ignoring the bread and butter issue of cost-of-living.

This brings us to the second factor that (could) shape 2024: a potential federal election.

The current House of Representatives doesn't expire until July 2025. But some argue the government should go to an early election in August 2024.

The argument is simple: if the cost-of-living crisis is only going to get worse, then the government is better off going to an election when times are good, particularly if it delivers a popular Budget in May with its promised Stage 3 tax cuts.

The problem with this argument is that times aren't that good to begin with. The government is doing terribly in the polls, budgets don't tend to give the political boost they once did, and it's unclear whether Labor would be rewarded for delivering the Stage 3 tax cuts.

The government might be better-off biding its time, and using it to develop and implement a plan to reduce inflation.

They've got three options, according to economic theory: reduce government spending, get households to reduce their spending (by increasing taxes) or increase the supply of goods and services by removing regulatory constraints, increasing competition and cutting tariffs on imports.

The government has done well to constrain its spending, but it's done little to reign in private spending (after all, they are cutting taxes for the rich rather than increasing them) or to increase the supply of goods and services.

And it doesn't have long to come up with a convincing plan, particularly given that Peter Dutton has one ready to go: cut immigration.

It's economically questionable whether reduced immigration would ease inflation given workforce shortages are a key cost-driver of inflationary pressures, but it's politically salient. The government best move quickly.

The third factor that will shape Australia in 2024 won't happen in Australia, it'll happen in America.

The election of Donald Trump as President of the United States in November seems all but guaranteed, at least on current projections.

Donald Trump is the presumptive nominee for the Republican Party while Democrats are unenthusiastic about Biden. Trump will comfortably beat President Biden in the general election if the election was held today.

This will reshape the global environment. US policies on the conflicts in Gaza and Ukraine will shift. US support for action on climate change will be reversed. Sweeping new trade tariffs will be introduced. US-China tensions will escalate. Support for traditional alliances will drop off.

There will be big implications for Australia.

Trump will likely turn against AUKUS, will probably cancel the nuclear submarine deal with Australia and could even impose tariffs on Australian exports to the US as part of a broader increase in US protectionism.

Albanese will do his best to be friends with Trump, but it'll be an uphill battle. The two could not be further apart. Look at their histories, look at their parties, look at their values.

This brings us to the fourth factor that will shape Australia's 2024: what happens in China.

Albanese's attempts to repair Australia's relationship with China will be all the harder when the US starts ratcheting up tensions. And changes in China will impact Australia, too.

China's economy was worryingly anemic in 2023. China's economy is forecast to grow at an average 4.1 per cent over the next 5 years, nowhere near its 10.3 per cent average in the 2000s or its 7.7 per cent in the 2010s.

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Some of China's growth slowdown is cyclical - such as weak household budgets - but some of it is structural, including problems in the property market, increased government debt, increased tensions overseas and increased government intervention that threatens to stifle desperately needed productivity and innovation.

All of this is bad news for Australia as demand in our biggest export market shrinks to what might be a permanently lower 'new normal'.

Challenges abound in 2024. But if there's one silver lining, it's this: almost all these challenges will take place in the second half of 2024.

The government best fix the roof while the sun is shining.