Economics: Australia – Big Policy Challenges Ahead
The RBA is walking a tightrope …
The benign outlook embodied in the RBA’s forecasts sits at odds with a willingness to do ‘too much’ rather than ‘too little’. We think the Bank can get inflation down towards 3% and avoid a recession, but the housing sector faces a deep downturn.
… as the economy returns to a familiar pattern of growth
Population growth and non-cyclical spending – the ‘old’ growth model – will help buffer the downturn. But looking ahead, this model is unlikely to foster a revival of productivity growth. The past few years have thrown up three further challenges.
Three evolving forces will further test policymakers
The shifting relationship with China; decarbonisation; and diminished fiscal capacity, all point to a less benign outlook. A higher inflation premium, higher interest rates, modestly tight fiscal policy, and lacklustre per capita GDP growth all look likely.