Australian Economy Is Capable of Stronger Growth: RBA's LoweBy and
Key will be navigating good reforms through political process
Reiterates forecast for faster growth in next couple of years
Australian central bank Governor Philip Lowe said his economy is capable of faster growth if lawmakers can overcome political gridlock, while warning weak wage gains are likely to keep plaguing developed nations.
“It is important that we have a sharp focus on the reforms that can make a real difference to our living standards,” Lowe said in a speech delivered in Canberra Monday. “If we don’t do this, we will fall behind.”
Since the 2008 global financial crisis, Australian politics has become increasingly polarized as parties exploited those losing out from proposed reforms to gain electoral advantage. This has resulted in risk-aversion increasing among government and limited action, meaning Australia hasn’t cemented a significant economic reform since a goods and services tax was introduced in 2000.
“The positive news is that there is no shortage of good ideas here,” Lowe said. “The not-so-positive news is that there is a shortage of good ideas that can successfully navigate the political process.”
The governor reiterated the RBA’s forecast that growth will accelerate over the next couple of years amid a synchronized upswing in the global economy.
But he warned that average per capita income in the next couple of decades was likely to be lower than in the past quarter-century, a period when Australia’s economy managed to avoid a slump. The RBA chief said while 26 years without a technical recession -- or two consecutive quarters of economic contraction -- “is a significant achievement,” strong population growth has “flattered” Australia’s gross domestic product data.
During a panel discussion at the Crawford Australian Leadership Forum, Lowe also addressed the theme of weak wage growth that’s bedeviled western nations including Australia -- and causing discontent among workers -- particularly when nations like Germany, the U.K., the U.S. and Japan are at or close to full employment.
Lowe cited three major reasons for the weakness:
- Productivity growth has slowed despite advances in technology. Lowe said the slowdown is probably temporary as productivity gains tend to “come in waves” and another is likely not too far down the track;
- Workers feel like there is more competition: “they worry about foreigners and robots.” The RBA chief said when anyone senses greater competition they’re less inclined to increase their price demands
- People value employment security in an uncertain world and feel they can increase it by not asking for a bigger wage rise
“I don’t think any of these things are going to change quickly,” he said. “We’ll have to get used to it unfortunately.”
Returning to the fact that job markets in some countries are pretty tight, the RBA chief theorized that “at some point one imagines that’s going to lead to workers being prepared to ask for larger wage rises. If that were to happen that would be a good thing.”
Lowe took issue with comments that a decline in hours worked in the labor market is “terrible,” saying a lot of people actually just want to work part-time in the modern economy.
He also noted the changing drivers of growth in the country as Australians increasingly work in service industries, even as natural resources remain the key export earner.
“Right across the spectrum, competitive advantage is increasingly built on technology and management capability,” Lowe said. “This trend is not going to go away and we need to capitalize on it. There is no magic solution.”