Economics

Attorney-General Michelle Rowland has announced that the nation’s modern slavery laws will be strengthened with substantial fines and criminal offences. The Albanese Government has announced plans for a new criminal offence and civil penalties for large companies that fail to prevent modern slavery in their supply chains. The move gives the law “some teeth” after years of a voluntary code that was able to be ignored by the worst offending companies. The announcement comes weeks after the United States threatened trade tariffs over the issue, adding international pressure on Australia to take meaningful action on human rights in global supply chains.

The new laws will make big companies criminally liable for modern slavery in supply chains, with penalties applying to companies with revenue over Aus$100 million. Australia imports billions of dollars of goods with a high risk of slavery in their supply chains every year, including electronics, garments and agricultural products from countries with weak labour protections. Human rights advocates have welcomed the crackdown, describing it as a welcome step to ending forced labour. The Australian Council of Trade Unions also welcomed the announcement, describing it as a long-overdue reform that will improve corporate accountability and help prevent labour exploitation, particularly in industries that rely on complex global sourcing networks.

The strengthened laws respond to longstanding concerns that the existing framework, which relied on voluntary reporting, was inadequate to address the scale of modern slavery risks in global supply chains. The new criminal offence creates a powerful deterrent for companies that might otherwise turn a blind eye to labour abuses in their supply chains. The legislation is expected to have significant implications for large businesses operating in Australia, requiring them to demonstrate robust due diligence processes, including regular audits, risk assessments and transparent reporting. The government has indicated that it will provide a transition period of 12 months for companies to comply with the new requirements.

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Australia’s share market headed for a poor final session of the week after US markets fell on weaker chip stocks and amid escalating conflict in the Middle East. The benchmark index fell 1.4 per cent as Brent crude hovered near $US85 a barrel, supporting strong performances from Woodside, Santos, Viva and Ampol. The geopolitical tensions in the Middle East have injected fresh volatility into global financial markets, with investors adopting a more cautious stance. The escalation of conflict between the United States and Iran has raised concerns about potential disruptions to energy supplies and broader economic stability, prompting a flight to safe-haven assets such as gold and government bonds.

The Australian dollar is buying 69.83 US cents, down from 70 US cents on Thursday at 5pm, reflecting the broader market sentiment. The weaker currency offers some support for exporters but also adds to imported inflation pressures, particularly for fuel and other commodities priced in US dollars. The recent oil shock has led to falls in Australia’s consumer and business confidence, though so far there are few signs of a marked slowdown in activity, according to a senior central banker. The resilience of the economy in the face of external shocks has been notable, though risks remain elevated and the potential for a sharper downturn cannot be discounted.

The share market decline was broad-based, with technology stocks particularly affected by the weaker sentiment in US markets. Chip stocks led the losses after disappointing earnings reports from major US semiconductor companies, with the Nasdaq composite dropping more than 2 per cent overnight. Energy stocks, however, bucked the trend, benefiting from the higher oil prices resulting from Middle East tensions. The mixed performance across sectors reflects the divergent impacts of the current geopolitical environment on different parts of the economy. Miners also struggled, with iron ore prices slipping on concerns about slowing demand from China, Australia’s largest trading partner.

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Deloitte has forecast Australia’s economy to grow by 2.2 per cent in 2025/26, with headline inflation predicted to remain above four per cent for the remainder of the calendar year, prompting the RBA to raise interest rates one more time in August. The forecast points to the longest stretch of weak growth since the 1990s, reflecting the challenging economic environment facing the country. The combination of persistent inflation and modest growth presents a difficult policy challenge for the Reserve Bank as it seeks to balance the competing objectives of price stability and economic activity. Deloitte Access Economics partner Stephen Smith described the outlook as “a prolonged period of sub‑par growth that is testing the resilience of households and businesses alike.”

The Deloitte analysis highlights the headwinds facing the Australian economy, including elevated inflation, geopolitical tensions and the ongoing impact of global supply chain disruptions. Despite these challenges, the economy has avoided recession, with unemployment remaining relatively low by historical standards at around 4.4 per cent. However, per capita GDP has gone backwards in two of the past five quarters and was flat in a third, underscoring the weakness in living standards growth. The outlook suggests that while the economy continues to expand, the pace of growth remains insufficient to generate meaningful improvements in per capita incomes, a trend that has significant political and social implications.

Inflation expectations have shown some signs of moderating, with Australia’s expected inflation rate falling to 4.7 per cent in July, the lowest level since January 2026, according to a survey released by the Melbourne Institute. This decline offers some encouragement that price pressures may be easing, though inflation remains well above the RBA’s target band of 2-3 per cent. The central bank’s next interest rate meeting will be held on August 10-11, with markets closely watching for any indication of the policy direction. Governor Michele Bullock has previously signalled that the board will not hesitate to tighten further if the data warrants it, but the current mixed signals make the decision finely balanced.

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Reserve Bank chief economist Sarah Hunter says global supply shocks appear to be occurring more frequently and the RBA will try to adjust to the new reality. She said the RBA was investing in new economic models, research, and frameworks to deal with the new problems. “These sharp adverse supply shocks have become more frequent, meaning the Monetary Policy Board and the RBA have had to navigate the policy trade-offs repeatedly,” Hunter said. “And we could see this continue going forward; economic spill-overs from rising geopolitical tensions, trade fragmentation, and the increasing prevalence of extreme climate events are just some of the shocks we are now experiencing.” Her speech in Canberra to the Economic Society of Australia laid bare the challenges facing monetary policy in an era of heightened global uncertainty.

“That means the RBA, and the economy more broadly, may have to face these trade-offs, and the costs that come with them, more often in the years ahead,” Hunter said. “To help us navigate through these complexities, the RBA is investing in our knowledge, people and frameworks.” Hunter made her comments in a speech in Canberra to the Economic Society of Australia. Only hours earlier, the world learned that the United States had launched fresh missile strikes against Iran, in the latest tit-for-tat assaults between the two countries that are again threatening to choke off the flow of shipping traffic through the Strait of Hormuz. That geopolitical flashpoint has already sent oil prices higher, adding to inflationary pressures globally.

Hunter said the prevailing wisdom was to look through short-term supply or relative price shocks, relying on the assumption that the shock and its impacts would be relatively temporary. However, if the shock was expected to be more persistent and create greater risks of inflation expectations shifting higher, the central bank would need to respond by raising interest rates. In recent years, the RBA had consciously poured more resources into understanding what a world of increasing supply shocks may look like for inflation targeting central banks. The traditional approach of ignoring first-round effects is no longer adequate when shocks cascade through multiple sectors and persist for quarters rather than weeks.

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Treasurer Jim Chalmers says artificial intelligence is central to his aim to turn around Australia’s lagging productivity, which could ultimately help lower interest rates. Productivity and real wages growth have been generally stagnant in Australia for more than a decade, with business investment also generally weak, albeit with recent signs that capital expenditure is starting to pick up. Stagnating productivity means that, instead of making and selling more goods from each hour worked, businesses can generally only maintain or increase their profits by raising prices. This drives up inflation and has created a key sticking point for the Reserve Bank when it considers whether to raise or lower interest rates, as the central bank seeks to balance price stability with sustainable employment.

OECD data shows that instead of productivity, corporate Australia is relying on high migration, consumer wealth from house values and favourable terms of international trade to maintain its profitability. In an interview with Alan Kohler, Chalmers spruiked the government’s new AI framework announced by Prime Minister Anthony Albanese and said artificial intelligence and productivity would be “front and centre” of the intergenerational report he would be releasing towards the end of the year. “If you look at all the big shifts in the global economy and in our societies — aging and demographics, changing industrial base, geopolitical fragmentation, the energy transformation, all of that is relevant to this technological revolution which we see in AI,” he said. The Treasurer’s comments reflect a growing recognition that Australia cannot rely on population growth alone to drive economic prosperity.

“For me, it’s central to the work that I do as Treasurer, and it’s central to the work that I do trying to turn around a couple of decades of ordinary productivity performance,” Chalmers said. “Everybody recognises at the most basic level that AI has the capacity to make our economy more dynamic and therefore more productive and the best way to grow our economy over time and lift living standards for people is to make it more productive.” Chalmers said Australia’s productivity decline had spanned two decades and the most recent federal budget included an estimated $10 billion cut in compliance costs forecast to lift GDP by $13 billion — the biggest boost to productivity in three decades. He emphasised that these measures are designed to create an environment where businesses can innovate and adopt new technologies without being weighed down by red tape.

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