Sub-par growth to continue as mining investment falls and govts restrain spending

The Reserve Bank of Australia’s Head of Economic Analysis, Dr Jonathan Kearns, gave an informative presentation this morning on current economic conditions at an Economic Society of Australia (Qld branch) breakfast at the Brisbane Polo Club. The outlook for at least the next twelve months is for below-trend (i.e. less than 3%) economic growth to continue. Unemployment is likely to (slowly) drift upward while growth remains sub-par. Jonathan’s presentation was based on the RBA’s latest Statement on Monetary Policy. Key points from Jonathan’s presentation that I jotted down include the following.

  • Mining is starting to subtract from growth through the decline in capital investment, though this is offset somewhat by mining exports picking up.
  • The other major issue for the economy is that public demand (i.e. government spending) growth is very weak – the weakest period of growth in fifty years – and is expected to remain weak over the next couple of years.
  • The combination of declining mining investment and weak public demand growth will lead to below average growth in GDP (below 3%) in the next couple of years.
  • But highly stimulatory monetary policy (lowest cash rate ever) should boost the economy in other sectors, particularly housing.
  • The growth of our major trading partners is expected to remain around the long-term average over the next few years, meaning we don’t have to fear a decline in exports.
  • While services and manufacturing exports have been going nowhere recently, there are some signs of improvement in education and tourism exports.
  • There have been improvements in forward indicators – e.g. job ads, which have picked up but remain at low levels. Hence any employment growth will be moderate.
  • Because of higher unemployment, wages growth is down – 1% below average – which should result in lower inflation.
  • We should see economic growth picking up in late 2015 and into 2016.
  • Inflation is expected to remain within the target range (2-3%) over the next couple of years.


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