Australian economy reaching turning point
In the semi-annual meeting with the Parliamentary Committee, Reserve Bank Governor Dr Philip Lowe said that the Australian economy was at a turning point and urged the government to do more.
The meeting comes after Liberal MP Tim Wilson accused the RBA of giving up on stimulating the economy, which in turn followed the bank’s announcement that it would not be adjusting interest rates, which remain at a record low of 1% after cuts in June and July of this year.
Justifying the bank’s decision, Dr Lowe said the low interest rates would “boost jobs and help make more assured progress towards the inflation target” – although he does acknowledge many Australians will be hurt by the strategy, especially those who rely on interest payments.
In the meeting, Dr Lowe said that the Australian economy was reaching a “gentle turning point”, and that he expects “the quarterly GDP growth outcomes to strengthen gradually after a run of disappointing numbers.”
Dr Lowe reached this conclusion based on several factors that are currently helping Australia, including:
- The lower interest rates
- The housing market stabilising
- Improved resource investment outlooks
- Continued high infrastructure spending
“It is reasonable to expect that, together, these factors will see growth in the Australian economy return to around its trend rate next year,” Dr Lowe told the committee.
The RBA downgraded expected economic growth this year, but forecasts for 2020 remain unchanged with an expected growth rate of 2.75%.
Issues still remain
However, it “reasonable to expect an extended period of low interest rates,” Dr Lowe also said, pointing out that “it is difficult to escape the fact that if global interest rates are low, they are going to be low here in Australia too.”
Questioned if Australia’s interest rates would reach 0, Lowe said it was unlikely but possible, and the RBA would be prepared to “do unconventional things if circumstances warranted.”
Despite improvements in economic growth, with the RBA believing unemployment rates will remain at 5%, workers should not expect a pay rise soon, reports the Sydney Morning Herald (SMH). For there to be an “upward pressure” on wages, unemployment rates must first drop to 4.5%.
“Upward pressure on wages growth over the next couple of years is likely to be only quite modest, and less than we were earlier expecting,” said Dr Lowe.
Calls for action
With few barriers to development due to the low cost of money, Dr Lowe urged the government to do more, reiterating earlier calls to increase investment in infrastructure.
“Spending on infrastructure not only adds to demand in the economy but, done properly, it can boost the economy’s productivity. It can also directly improve the quality of people’s lives through reducing congestion and improving services,” he said.
Dr Lowe also called for the government to “consider structural reforms which would boost productivity.” He believes this strategy would help Australia be viewed as a great place to “expand, invest, innovate and employ people,” which will help overall growth moving forward.