Economy set for surge
AUSTRALIA is capable of producing stronger economic growth than it has for years, according to Reserve Bank governor Philip Lowe, although much will depend on Canberra’s ability to break its deadlock on reforms.
Nearly a decade after the financial crisis, the “healing process” among affected nations is well advanced and Australia stands to benefit from the likely cyclical upswing in the global economy, Dr Lowe said yesterday.
“We are in a better position than we have been for some time,” he said at a conference in Canberra.
“To be clear, we are not talking about a boom and there are still plenty of risks out there. But globally things are better. Animal spirits have been missing for quite a while and they might just be starting to come back.”
But the “rising tide” effect will only last so long – there also needs to be a domestic focus on reforms that can lift living standards, Dr Lowe said.
“The positive news is that there is no shortage of good ideas here,” he told the Crawford Australian Leadership Forum at the Australian National University.
“The not-so positive news is that there is a shortage of good ideas that can successfully navigate the political process.”
Dr Lowe’s thinly-veiled swipe at Canberra should not come as a surprise, with this week’s education package the latest in a long list of reforms to front a fractious Senate.
The needs-based funding model, which aims to inject an additional $18.6 billion into Australian schools over the next decade, faces a race against time to gather enough votes to pass into legislation ahead of the winter recess at the week’s end.
Dr Lowe also said households were contending with slower income growth and a slide in average hours worked.
“Many households are also coming to grips with higher debt levels and, in our largest cities, high housing prices. We need to watch these issues.”
In last month’s quarterly economic update, the RBA stuck by its expectation of a gradual outbreak of sunshine across the economy, with gross domestic product growth averaging 3 per cent by the end of the year. From there, GDP will settle in a range of 2.75-3.75 per cent, with inflation also slipping back within the 2-3 per cent target band.
The forecasts were predicated on a number of tailwinds: the drag from weak mining investment levels was nearly over, business conditions had improved considerably and the workforce was putting on more full-time jobs.
They tally up with a similarly upbeat tone adopted by Treasury, which last month drew criticism for pinning a revenue boost in coming years on a projected uptick in wages.
Economists, though largely of the view that the central bank has delivered its final rate cut in the present cycle, are yet to be convinced the turnaround is clear-cut.
JP Morgan Australia chief economist Sally Auld still predicts the RBA will cut two more times to 1 per cent, although now expects those moves will come in the first half of 2018.