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25-11-2015, 07:21 AM
RBA boss Glenn Stevens says GFC novices in for a shock
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The next major shock to the economy will be amplified because a huge proportion of the population has not experienced a severe downturn, Reserve Bank governor Glenn Stevens has warned.
Mr Stevens said half the workforce had not seen the impact of sharply rising unemployment and many in business would be similarly unprepared.
“There will be economic downturns from time to time,” he told a conference of economists last night.
“If one of those turns out to be a big one, it will be a very new experience for quite a lot of Australians. Close to half the workforce has never seen really high, nationwide unemployment. A lot of people in business have, I suspect, not seen how tough conditions can become when virtually every industry and region is contracting. That they have not seen this is a good thing … but if one comes it will be a shock.”
Australia has not had a recession in nearly 25 years. The country avoided the worst of the 2008-09 global financial crisis due to a rapid budgetary expansion, massive interest rate cuts, a collapse in the dollar, and China’s decision to spend massively on infrastructure.
Mr Stevens was not forecasting an imminent shock, saying instead that recent data had pointed to improvement in the economy. “A number of data points over recent months suggest that prospects for firmer conditions in the non-mining economy are improving.
“Business surveys indicate that firms report conditions to be, if anything, above their long-term average in some key sectors. Firms seem to have stepped up their hiring. Job vacancies have been increasing, hours worked have been increasing and employment growth, even before the most recent month’s data, have strengthened noticeably over the past year.”
At a question-and-answer session after his speech, Mr Stevens debunked suggestions the economy would not be able to offer enough jobs, arguing instead that there would not be enough workers to support the ageing population
Australia’s economy has been sluggish in recent years, stung by the end of a decade-long mining investment boom, falling commodity prices and a slowdown in China. The RBA recently forecast below-average growth for the years ahead as weakness in investment continues to put a brake on activity. Still, recent low inflation readings meant the RBA had scope to cut interest rates further if the economy needed support, Mr Stevens said.
Financial markets have been winding back bets on a near-term cut in interest rates in Australia as evidence of a steady, albeit slow, recovery becomes visible in economic data.
Mr Stevens said China, Australia’s biggest trading partner, would grow more slowly in the coming decades, but would still be significant. “It is not very controversial to suggest that China will grow more slowly on average than in the past decade, but it will still be a big deal given its overall size,” he said.
Global interest rates were set to remain low over coming years, he added. The US Federal Reserve looked set to hike rates next month, but tightening beyond that would be slow.
The Wall Street Journal
- JAMES GLYNN
- THE AUSTRALIAN
- NOVEMBER 25, 2015 9:03AM
RBA governor Glenn Stevens. ‘It will be very new experience for quite a lot of Australians.’ Picture: Aaron Francis
The next major shock to the economy will be amplified because a huge proportion of the population has not experienced a severe downturn, Reserve Bank governor Glenn Stevens has warned.
Mr Stevens said half the workforce had not seen the impact of sharply rising unemployment and many in business would be similarly unprepared.
“There will be economic downturns from time to time,” he told a conference of economists last night.
“If one of those turns out to be a big one, it will be a very new experience for quite a lot of Australians. Close to half the workforce has never seen really high, nationwide unemployment. A lot of people in business have, I suspect, not seen how tough conditions can become when virtually every industry and region is contracting. That they have not seen this is a good thing … but if one comes it will be a shock.”
Australia has not had a recession in nearly 25 years. The country avoided the worst of the 2008-09 global financial crisis due to a rapid budgetary expansion, massive interest rate cuts, a collapse in the dollar, and China’s decision to spend massively on infrastructure.
Mr Stevens was not forecasting an imminent shock, saying instead that recent data had pointed to improvement in the economy. “A number of data points over recent months suggest that prospects for firmer conditions in the non-mining economy are improving.
“Business surveys indicate that firms report conditions to be, if anything, above their long-term average in some key sectors. Firms seem to have stepped up their hiring. Job vacancies have been increasing, hours worked have been increasing and employment growth, even before the most recent month’s data, have strengthened noticeably over the past year.”
At a question-and-answer session after his speech, Mr Stevens debunked suggestions the economy would not be able to offer enough jobs, arguing instead that there would not be enough workers to support the ageing population
Australia’s economy has been sluggish in recent years, stung by the end of a decade-long mining investment boom, falling commodity prices and a slowdown in China. The RBA recently forecast below-average growth for the years ahead as weakness in investment continues to put a brake on activity. Still, recent low inflation readings meant the RBA had scope to cut interest rates further if the economy needed support, Mr Stevens said.
Financial markets have been winding back bets on a near-term cut in interest rates in Australia as evidence of a steady, albeit slow, recovery becomes visible in economic data.
Mr Stevens said China, Australia’s biggest trading partner, would grow more slowly in the coming decades, but would still be significant. “It is not very controversial to suggest that China will grow more slowly on average than in the past decade, but it will still be a big deal given its overall size,” he said.
Global interest rates were set to remain low over coming years, he added. The US Federal Reserve looked set to hike rates next month, but tightening beyond that would be slow.
The Wall Street Journal