Economy must be built on good ideas: RBA chief

  • By Elizabeth Fry

Central bank governor Philip Lowe believes Australia’s longer-term prospects remain positive, but warned that "we need to keep working to keep them that way".

During a speech to the Australian National University’s Crawford Australian Leadership Forum on Monday morning, Lowe said that, as things currently stand, it looks likely that average growth in per capita incomes over the next quarter of a century will be lower than over the past quarter of a century.

The Reserve Bank of Australia chief referred to the glowing reports of Australia’s uninterupted 26-year run without a technical recession but cautioned against too much celebrating.

Lowe pointed out that over those 26 years, Australia has had three periods of rising unemployment. Further, that strong population growth has also flattered headline growth figures. The central bank offical identified the 'headwinds' to his Canberra audience.

"Households are gradually coming to grips with slower growth in their real incomes, growth in wages is unusually low, average hours worked have declined and the nature of employment is changing. So, there is a recalibration of expectations going on. 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 carefully," he said.

"We should, though, be capable of stronger growth than we have seen over the past few years. But we can't take this for granted. It is important that we have a sharp focus on the reforms that can make a real difference to our living standards. If we don't do this, we will fall behind."

Political process

The positive news, he went on to say, is that there is no shortage of good ideas here. The not-so-positive news, he added, is that there is a shortage of good ideas that can that can successfully navigate the political process.

Lowe added that right across the spectrum, competitive advantage is increasingly being built on technology and management capability.

"This trend is not going to go away and we need to capitalise on it," he said. "If we are to grow strongly in the future, then that growth will be built just as much on the quality of our ideas as it is on the quality of our natural resources."

On the global outlook, Lowe said there was a clear cyclical upswing underway, across multiple economies but warned that at some point that upswing would run its course.

“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," he said.

"Beyond that, much depends upon demographics and technology.”