RBA's Ellis Says Global Economic Expansion No 'Flash in the Pan'By
Assistant governor discusses global growth in Sydney speech
Risks remain from geopolitical tensions and household debt
Australia’s central bank sees a good chance that global growth continues on its current path, though geopolitical and domestic risks could still derail its momentum.
"The global economy is looking better than it did a year ago," Luci Ellis, Reserve Bank of Australia’s assistant governor for economics, said in notes of a speech to be delivered in Sydney Wednesday. “While it doesn’t seem to have picked up further recently, neither is this expansion a flash in the pan.”
Rising political tensions, especially in Asia, and record levels of household debt at home pose risks to the central bank’s outlook. The RBA has long warned that too many home owners are over-burdened with debt, though Ellis said this is probably best regarded as a potential exacerbating factor.
“If some other shock should come along, debt would make it worse,” she said.
While global wage growth and inflation should pick up as the forces of supply and demand assert themselves, that “could take a while," Ellis said. If price pressures remain subdued despite reasonable growth, then policymakers face a challenge.
"In that scenario, policy needs to remain appropriately expansionary while avoiding further build-up of leverage and financial risk," she said.
Ellis noted that leverage doesn’t seem to have increased as much in the current cycle as it did in the lead up to the global financial crisis. She suggested there was potential for productivity growth to pick up once spare capacity in the world’s leading economies has been fully absorbed.