Speech Summary The Path to Prosperity
Address to the 2015 Economic and Social Outlook Conference
The Melbourne Institute and The Australian
The speech starts by looking at some of the issues and forecasts considered at the same Conference exactly six years previously. It notes that the background to that event, entitled ‘The Road to Recovery’, was that Australia had experienced a short and shallow downturn in economic activity at the end of the previous year but was already starting to recover, even as the global economy fell into serious recession. The focus had been, at that time, to ensure that ‘the Road to Recovery’ met the ‘Path to Prosperity’.
The speech goes on to outline some of the economic surprises that came to pass in the intervening years, including: the ‘mining boom mark II’; the further significant rise and then subsequent fall in Australia's terms of trade; and the search for yield in global capital markets driven by ongoing ultra-easy monetary policy in the major economies. But it also notes that some of the economic outcomes in the period were already clearly marked out, including: the growth in China and the impact that would have on the Australian economy; the growing importance of housing-related issues as the population of Australia continued to grow and the related infrastructure issues; and the need for structural reform and fiscal repair. The speech moves on to suggest that Australia has managed the mining-boom related challenges with some success; Australia's economy has continued to grow. And it posits that those successes will stand the country in good stead in the inevitable downswing and rebalancing phase of the episode.
In talking about monetary policy's contribution to the management of the economic challenges, the speech notes the recent increases in mortgage rates of the commercial banks, outside of the cycle of changes in the cash rate. It sets out how the Reserve Bank Board thinks about such changes and its focus when considering the implications and whether a policy response is necessary. In particular it describes the Board's policy intent when it made cuts to the cash rate in early 2015 and compares that to prevailing current financial conditions. The speech concludes that the macroeconomic effect of the banks' actions may not be large. But that the changes are one part of a much bigger and evolving landscape that the Reserve Bank Board will continue to carefully monitor month by month.
The speech concludes that the nature of, and challenges along, the path to prosperity that the Australian economy has taken in the past six years are not much different to those faced when they were considered six years ago. It suggests that macroeconomic policies can and have provided a measure of counter-cyclical stabilisation, but that they can't serve as a magic bullet to achieve sustained growth in living standards. And it opines that with the terms of trade-driven improvements now behind Australia, productivity is the main game in ensuring prosperity.