RBA talks up Aussie economy

Australians should look beyond their disappointment with recent sluggish economic growth and take heart from the economy’s ability to cope with shocks, a top central banker has said.

Reserve Bank of Australia deputy governor Philip Lowe said the economy has adjusted to a massive positive shock from booming commodity prices without overheating, and is now managing moderate economic growth despite falling commodity prices.

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”This is a significant achievement and is a testimony to the underlying flexibility of our economy,” he said in a speech in Melbourne on Wednesday.

Dr Lowe said there were three elements to the economy’s flexibility – the exchange rate, the labour market and monetary policy – and each was helping the economy’s transition away from the mining investment boom.

“The missing ingredient continues to be a lift in non-mining business investment, where we are still waiting for convincing signs of a pick-up,” he said.

And, although the economy’s flexibility would foster a rise in non-mining business investment, there were limits to what a low exchange rate, slow wages growth and low interest rates could do.

So it was important to focus on improving the climate for business investment, he said.

“There is no magic bullet here, but surely the investment climate would be improved through a strong focus by both business and government on innovation, productivity, human capital and entrepreneurship, topics that I have spoken about on previous occasions.”

Topics: Economy
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