The governor of the Reserve Bank, Glenn Stevens, has voiced concerns with Australia’s economy in a speech at the Committee for Economic Development of Australia’s annual dinner in Melbourne last night.
Here are the key takeouts from his speech.
1. Businesses need to take more risks
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Stevens called for more risk-taking by Australian businesses.
He questioned “whether our overall business environment is conducive enough to risk-taking and innovation, and whether we are doing enough to develop the relevant competencies.”
2. Outstanding credit rates are not concerning
Stevens attempted to set the record straight with his views on housing.
He said he is not concerned with the credit outstanding to households rising at about 6% to 7% a year.
3. The economy needs a boost
Stevens was somewhat downbeat about the economy, channelling the “animal spirits” of the housing sector.
“It is not clear whether price increases will continue or abate. Furthermore, it is not to be assumed that investor activity is problematic, per se. A proportion of the investor transactions are financing additions to the stock of dwellings, which is helpful. It can also be observed that a bit more of the ‘animal spirits’ evident in the housing market would be welcome in some other sectors of the economy,” he said.
Harley Dale, chief economist at the Housing Industry Association, told SmartCompany Stevens sounded more tempered on the short-term economic prospects for Australia.
“He wasn’t quite as optimistic as he has been in other communications,” Dale says.
“He did note more explicitly the important role that rising house prices are playing in providing a signal to increased housing supply, which is obviously good for the economy, but also talking about the expectation that consumer spending may get some boost from rising dwelling prices.”
Dale sees Stevens’ reference to “animal spirits” as indicating that he was hoping for broader signs for a strengthening economy going into the new year.
4. There’s some overexcitement in the property market
Stevens acknowledged there are signs in the property market where “some people might be starting to get just a little overexcited.”
5. No likely increase in interest rates
Stevens indicated the Reserve Bank will not lift interest rates any time soon.
“The economy has spare capacity. Inflation is well under control and is likely to remain so over the next couple of years. In such circumstances, monetary policy should be accommodative and, on present indications, is likely to be that way for some time yet. But for accommodative monetary policy to support the economy most effectively overall, it’s helpful if pockets of potential over-exuberance don’t get too carried away.”
Dale says even though the Reserve Bank is holding firm this could change in the future.
“Basically he still has the same line that he is not convinced that we need to expressly implement some form of macroprudential tools but he is concerned about the rate of growth in that category.”
6. Businesses need to innovate
In a conclusion that pulled no punches, Stevens attempted to rally the troops.
“Maximising our economic possibilities in the modern world requires sustained efforts at adaptation and innovation, at doing things better and, perhaps most of all, a willingness to take the occasional risk. I would be confident that we have, or can develop, the relevant capabilities. The only question is whether we are sufficiently determined to succeed in deploying them.”
Craig James, chief economist at CommSec, said Stevens’ speech could only be described as a “call for action”.
“It was the type of speech that a coach delivers to his players. It is definitely a speech worth reading.”
The entire speech is available here.