Australia’s painful run of record low wages growth may have finally troughed, according to the Reserve Bank governor, who says wages are expected to grow more quickly from this point.
If so, it will be a welcome relief for households across the country, where staggeringly low wage increases of 2% and less in recent years have had a “sobering effect” on household finances.
The RBA governor, Philip Lowe, told a business gathering in Perth on Wednesday that economic conditions were improving in every region in Australia as the remnants of the destabilising wind-down in mining investment finally disappeared.
He said the economy was likely to grow more strongly over the next two years than it did last year as non-mining investment increased, exports continued to grow, and more people found jobs, leading to a pick-up in wages growth and inflation.
“The latest data suggest that the rate of wages has now troughed, with a pick-up evident in the most recent quarter,” he said. “A further lift is expected, but it is likely to be only gradual.”
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The Turnbull government will welcome the expectation that Australia’s run of record-low wages growth may be over, given this week’s news that it has now trailed Labor for 30 consecutive Newspolls.
Turnbull was at pains to remind voters this week of his government’s employment track record, saying he has presided over 17 months of continuous jobs growth and a solid improvement in investment.
“Remember in 2016 I said ‘jobs and growth’? Well that’s what we’re delivering,” he told 2GB radio on Monday.
Lowe told the Australia-Israel Chamber of Commerce on Wednesday he did not see a “strong case” for interest rates to rise in the short term.
“While some other central banks are raising their policy rates, we need to keep in mind that their economic circumstances are different and that they have had lower policy rates than us over the past decade, in some cases at zero or even below,” he said.
“A continuation of the current stance of monetary policy in Australia will help our economy adjust and should see further progress in reducing unemployment and having inflation return to target.”
Australia’s official cash rate remains at a record low 1.5%. The last time it was increased was more than seven years ago.
Lowe cautioned there were some uncertainties with the economic outlook, mostly coming from the international arena.
He said a “serious escalation of trade tensions” could threaten the global economy, and Australia had “a lot riding on” Chinese authorities successfully managing the buildup of risk in China’s financial system.
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Domestically, he said the high level of household debt remained a “source of vulnerability” in Australia, although the risks in this area were no longer building.
KPMG released its latest quarterly economic outlook this week, forecasting growth of 2.9% for this financial year, up from just 2% in 2016-17.
A separate analysis by Deloitte Access Economics for the Minerals Council of Australia, released on Wednesday, found the mining sector had enjoyed its most profitable period in years, driven by stronger commodity prices and reversing the fall between 2012 and 2015.
According to Deloitte’s report, Australian mining companies paid $12.1bn tax in 2016-17, almost four times as much as the previous financial year and the highest since the mining investment boom in 2011-12.
With Australian Associated Press