Source : Perth Now news
Mortgage holders may have been spared more rate pain by the Reserve Bank but Australia’s chronically weak productivity growth means households will continue to suffer.
As the RBA board held interest rates steady for a second-straight meeting, it noted that it could do so because the economy had been slowing as expected.
Because Australia’s productivity growth has been so limp in recent years, the central bank figures the economy can’t grow above two per cent a year without pushing up inflation – well below the trend growth rate of previous decades.
In its latest set of macroeconomic forecasts, released simultaneously to its rates decision on Tuesday, the RBA downgraded its labour productivity expectation for 2026 from 0.2 per cent growth to a fall of 0.5 per cent.
It came nearly a year to the day after the bank slashed its medium-term productivity from one per cent to 0.7 per cent.
Governor Michele Bullock lamented the RBA’s inflation objective essentially consigned Australia to feeble economic growth.
“Productivity outcomes have been weak for some time, and continued weakness will constrain the economy’s ability to grow without generating high inflation,” she said in her post-meeting press conference.
“We expect that a period of subdued growth in the economy will be required to bring inflation down sustainably.”
Essentially, a rate cut was ruled out in the near term despite the economy showing signs of weakness.
While she was concerned that Australia’s productive capacity was not growing, Ms Bullock said the RBA could do nothing about it.
“We just have to set monetary policy to deliver low and stable inflation, and hope that low and stable inflation gives good economic conditions for businesses to be confident and consumers to be confident to go about their business.”
AMP chief economist Shane Oliver said the federal government could have helped the RBA in the budget, by cutting spending to free up capacity in the economy and doing more to help boost productivity.
“There were some good moves to deregulate in the May budget but these will take years to bear fruit and the substantial removal of negative gearing and the capital gains tax discount amounting to a tax hike will likely be neutral to slightly negative for productivity,” he said.
The government has inadvertently helped the RBA by helping slow the housing market via its curbs to property investor tax breaks, which are weighing on household consumption and economic activity.
One hidden detail in the RBA’s Statement on Monetary Policy was a preview of the Australian Bureau of Statistics lending figures for the June quarter, which are not due to be released until Friday.
This showed a sharp drop in home loan approvals, especially for investors, said NAB head of Australian economics Gareth Spence.
While the housing market slowdown will help bring demand under control, household spending data itself has proved relatively resilient.
“Discretionary spending looks to have held up pretty solidly,” Mr Spence told AAP.
“It is growing at six per cent in nominal terms, but that still implies a relatively okay pace in real terms. So I think we’ll watch and we’ll see how much housing matters.”
