Reserve Bank of Australia 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 yesterday in a speech delivered in Canberra. “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 polarization has resulted in risk-aversion increasing among government and limited action, meaning Australia has not 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,” he said.
The central bank governor reiterated the bank’s forecast that growth will accelerate over the next couple of years amid a synchronized upswing in the global economy.
However, he said 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.
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 GDP data, he said.
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 UK, the US 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,” he said.
When anyone senses greater competition they are less inclined to increase their price demands, he said.
People value employment security in an uncertain world and feel they can increase it by not asking for a bigger wage rise, he said.
“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, Lowe 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.
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