For all the headlines about more interest rate cuts, Tuesday night’s speech by Reserve Bank governor Phillip Lowe was most notable for the frank admission that the central bank has been “surprised” by the slowdown in the economy and remains in the dark as to why it has occurred.
More, any rebound in the economy’s fortunes will be tepid at best:
While we are not expecting a return to strong economic growth in the near term, we are expecting growth to pick up. Against this backdrop, the main source of domestic uncertainty continues to be the strength of household spending.
Hence a forecast that low interest rates will be with us for an “extended” period of time. What was more intriguing was the suggestion that the RBA is uncertain about why the economy is sluggish when the strong labour market suggested otherwise.
It was quite brave of the governor to admit that the bank “did not expect this slowdown, so it has come as a bit of a surprise”.
Even after accounting for these three factors — the slowdown overseas, weak growth in household disposable incomes and the drought — part of the slowing in the Australian economy remains unexplained. This is especially so taking into account the labour market data, which continue to paint a stronger picture of the economy than the GDP data.
But while the RBA struggles to explain the slowdown to the fullest extent possible, it has pointed the finger at the Morrison government on three fronts — wage strangulation via the cap on pay rises; soaring bracket creep (which tax changes will only partially redress); and a lack of interest in boosting household incomes.
Notably absent from the speech was any mention of the need for change in labour market regulation, improved productivity or micro-economic reform, which will keep the neoliberal right happy. The right remains in denial about the disastrous impact their policies have had on wages and the wider economy in the middle of what has been one of the strongest and most substantive jobs booms in Australia’s history.
Failures of nerve and heart — traits that have characterised Coalition governments’ economic handling since Tony Abbott’s win back in 2013. Now, not even the RBA knows what’s going on.