RBA’s ‘Growth Girl’ Ridout Sees Confusing Time in Labor MarketBy
Australian economy has made a ‘good transition’ from mining
‘Very fortunate’ to have unemployment rate starting with 5
Australian central bank board member Heather Ridout said the labor market is beset by both structural and cyclical issues that make it harder to read even as the economy makes “a good transition” from mining.
“We’re seeing a lot of changes in technology gradually impact, we’re seeing changes in the structure of industry, manufacturing’s contracting even further, so there’s all these structural overlays,” she said in an interview Tuesday in Sydney. “In a time of uncertainty you often see more temporary employment before things translate into full-time work. So it’s a confusing time.”
Still, she said, Australia is “very fortunate” its jobless rate has a five in front of it -- referring to its 5.6 percent level -- and only peaked at “a low six,” given the scale of the challenge faced by plunging terms of trade and falling national income. Ridout said the key area for pickup remains non-mining investment, while suggesting it might be doing better than suggested by official data, which miss much of the expenditure in private health and some in education.
Ridout, chair of the nation’s largest pension fund AustralianSuper Pty, took up her position at the central bank in 2012 as the unwinding of mining investment accelerated, commodity prices slid and the Reserve Bank of Australia intensified its easing cycle. She described herself at the time as a so-called dove, the word used to describe a policy maker who leans toward economic growth over fighting inflation.
“I’m still a growth girl and I think I was proven right to be a growth girl,” she said. “The fact that we’ve been able to grow at a steady rate, grow all through the global financial crisis without blowing up the economy, it’s a testament to the flexibility of the Australian economy, its floating exchange rate and its flexible labor market.”
The RBA cut its benchmark rate from 4.75 percent in late 2011 to 1.5 percent in August as it sought to boost service industries like tourism and education to take over from mining as growth-drivers, and to narrow the differential with other economies running zero or negative rates and bond-buying programs.
Ridout is also a former head of the Australian Industry Group, giving her insight into the roadblocks to industries outside mining from investing. She said it’s “very confusing” for corporate boards to make investment decisions at the moment, worrying about disruption from technology and structural changes and knowing the return on investment is going to have to be lower.
“There’s a lot of noise in the investment decisions,” Ridout said. “But eventually -- and we’re seeing some encouraging signs -- that non-mining side has to lift. Because that’ll be the source of jobs, it’ll be the source of future growth, it’ll be the source of productivity.”
She also said the companies she used to represent have learned to be competitive at a higher exchange rate: they’ll always want a currency with a “six or five” in front of it but they have adapted. Their business models changed during the two to three years of a very high Aussie dollar and now the exchange rate has fallen “they’re getting their dividends,” she said.
The Aussie dollar peaked above $1.10 in July 2011 before falling below parity with the U.S. dollar in 2013. It bought 76.70 U.S. cents at 3:49 p.m. in Sydney. A more optimistic tone from the RBA has also prompted money markets to slash bets on a further easing of rates in the coming year.