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It's the demand-side, stupid!

3 0 0
20.11.2019

Reserve Bank governor Philip Lowe thinks the sluggish Australian economy may be reaching a gentle turning point. The problem is that it might be so gentle that it feels almost indistinguishable from stagnation. With the long-run drivers of economic growth absent for some time, optimism about a quick turnaround is misplaced. Worse still, with neither side of politics having correctly diagnosed the problem, the proposed solutions will have little to no effect. A radical rethink is required.

What's the answer to fixing Australia's economic malaise? It may be as simple as lifting Newstart.

Comparing the economy's performance in the second half of this decade with the first half reveals just how badly things are going. Quarterly wage growth is down 40 per cent. Retail spending growth is down 30 per cent. Consumption growth is down 15 per cent. Investment now contracts each quarter by an average of 0.4 per cent. The rate at which the economy creates new businesses has fallen from 14 to 11 per cent and GDP growth is now at global financial crisis levels.

The treasurer is quick to blame a weak global environment, but this doesn't stand up to scrutiny. He's correct that the global environment is weak and riddled with downside risks, but thus far it has been supporting the Australian economy rather than weakening it. Average quarterly growth in net exports has been six times higher in the second half of this decade than in the first. The Australian dollar has supported our exporters by falling 16 per cent from its 2018 peak, and low global interest rates have made it cheaper for our governments, banks, firms and households to borrow abroad.

The problems in our economy are homegrown. The weakness in the global economy and the damage caused by the trade war will indeed hurt the Australian economy, but that pain is yet to come. Global trade growth has........

© Canberra Times