There’s plenty to choose from for both economic pessimists and optimists in the last 24 hours, with the International Monetary Fund issuing a preliminary report on Australia, and Reserve Bank governor Phil Lowe offering his own perspective in a speech in Melbourne last night. The overall tone might have been quite different, but they have an important point of intersection.
The IMF team has been talking to the likes of Federal Treasury and the Reserve Bank, market economists and think tanks and issued a statement that will turn into a formal so-called Article IV report on Australia due in early 2017. “Australia has been confronted with symptoms of the 'new mediocre,' albeit to a lesser extent than in almost all other advanced economies,” the IMF says. “House prices and household debt ratios have risen further in the low-interest environment post-GFC, up from already high pre-crisis levels,” along with “other macro-financial vulnerabilities”, “the fall in the unemployment rate has likely overstated the improvement in labor markets”. Moreover “the tax system provides households with incentives for leveraged real estate investment that likely amplifies housing cycles” (that’s negative gearing, which the government thinks is just fantastic).