Reserve Bank Governor Philip Lowe has presented an optimistic outlook for Australia’s “resilient” economy, dismissing fears that falling home prices could “derail” the economy.
While “swings in housing prices” are “difficult for some in our community”, Australians should “take some reassurance from the fact that our economy and our financial system are resilient”, Dr Lowe told a House of Representatives economics committee in Sydney on Friday.
Australia’s household debt is among the highest in the world, with some home buyers taking out huge loans to buy at the height of the property price boom.
Prices have since fallen back to 2016 levels, prompting concerns that a deep housing market correction could curb household spending and prove catastrophic for Australia’s economy.
Dr Lowe moved to allay these fears, pointing out that prices in the major cities remain up to 70 per cent higher than a decade ago despite the ongoing correction.
“This adjustment in the housing market is not expected to derail the economy,” he said.
The central bank chief painted a positive picture of Australia’s economic fortunes in 2019, with the RBA forecasting growth of around 3 per cent, unemployment at 5 per cent, and inflation at 2 per cent.
Productivity key to long-awaited wages growth
The topic of Australia’s wage growth stagnation, an issue that has baffled economists, was also addressed.
Improving Australia’s productivity is the key to boosting people’s pay packets in the long run, Dr Lowe said.
Wages are growing faster than they were at this time last year and are expected to creep higher, as the jobs market continues to tighten, he said, while urging federal politicians to ensure the nation’s productivity – which reflects how efficiently labour and capital are used to produce goods and services – keeps rising.
“From a longer-term perspective … the key to boosting the real income of households is lifting productivity,” Dr Lowe said.
He urged people to be patient as they await higher wages, acknowledging the process is taking longer than expected.
“There is a pick up of wage growth taking place … it hasn’t been a marked pick up, but it is actually gradually picking up,” he said.
“The frustration that I have and many others have is that it’s taking longer than it used to.”
Dr Lowe stressed that the trend is not unique to Australia.
Employers are less likely to increase people’s wages when there is high competition among a workforce, and globalisation has fostered such “perceptions of competition and uncertainty”, he said.
“This phenomena we’re talking about is a global one. It’s in almost every advanced economy.”