Increased risk aversion among aging Australians and weaker productivity growth could see living standards rise more slowly in the future, central bank Deputy Governor Philip Lowe said.
About half of the decline in Australia’s labor force participation rate since late 2010 is due to aging, Lowe said in the text of a speech to be delivered in Sydney today. The nation’s society has undergone “a subtle but important” shift in the way it approaches risk and innovation, he said.
“More risk-averse society is naturally less inclined to support and finance innovation, to implement new processes and to apply new technologies,” the central bank’s No. 2 official said. “We are likely to face a greater challenge than we have to date in generating productivity growth. This means there is likely to be more of a premium on getting policies right in some key areas related to innovation.”
Lowe said Australia needs to address: access to startup capital for new businesses; tax incentives for innovation; support for research; business culture and assisting entrepreneurs and promoting competition. The Reserve Bank of Australia has cut its key interest rate to a record-low 2.5 percent and flagged a period of steady borrowing costs as it tries to plug the hole left by a mining-investment drop off and spur employment-intensive industries like housing construction.
“While changes in demography and productivity have little influence on our month-to-month decisions about the cash rate, they do have an important bearing on the average level of the cash rate over time,” Lowe said. “In effect, they set the contours within which we make our monthly decisions.”
Australia’s unemployment rate probably held at a 10-year high of 6 percent in February, economists predicted ahead of data due March 13.
The nation’s bipartisan openness toward immigration has helped ensure a surge in the share of the population born overseas to about 28 percent, the most since the 19th century. While raising environmental challenges and the risk of racial tensions, a projected doubling of the population to 46 million by 2075 helps Australia stand out among developed nations including Japan seeing their numbers shrink.
Lowe said this puts Australia in a better position than many developed nations.
“While high population growth and high levels of immigration can create challenges of their own, properly managed, they can also help create a more dynamic economy and a society with more opportunities for all,” Lowe said. “It is also worth noting that, on average, new immigrants to Australia are almost 10 years younger than the average Australian. Immigrants are also more likely to have a post-secondary school qualification than the average Australian.”
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