Speech Summary Economic Possibilities
Speech to the Committee for Economic Development of Australia (CEDA) Annual Dinner
The speech begins by discussing Australia's recent economic history – the larger-than expected rise in the terms of trade and the resulting ‘extraordinary’ period of mining investment in Australia. It explains that although increased resource exports will continue to contribute to real GDP and national income in the years ahead, the resources sector will no longer play as central a role in driving economic growth as it had previously, as the economy shifts from the investment phase to the export phase of the mining boom. The speech reiterates that other sectors will need to play a stronger part in driving growth in the economy during this transition. It notes that capacity in the labour market (freed up after the peak in mining investment) will enable non-mining sectors to grow above trend for several years without contributing to serious inflation pressures. And it suggests that a further fall in the value of the Australian dollar should assist in achieving this, more balanced, growth.
As part of this, consideration is then given to the housing market and how this sector can contribute to the economy's transition. The speech argues that a sustained period of strong construction (rather than a ‘sharp boom and bust’) will be helpful in encouraging growth in non-mining activity. It outlines how low interest rates are encouraging investment in housing and supporting the economy overall, but it cautions against people getting ‘overexcited’ in this environment. Looking at recent developments in house prices and credit growth, the speech concludes that while these issues do not pose an immediate threat to the economy or financial stability, recent global experience would suggest that suitably calibrated and focused action to help ensure the maintenance of sound lending standards is appropriate to stop ‘pockets of potential over-exuberance’.
The speech goes on to observe that some of the ‘animal spirits’ evident in the housing market would be welcome in other sectors of the economy. And it suggests that it is up to firms to commit to investment and contribute to growth. Attention is then given to recent improvements in productivity growth. This leads to a broader set of questions about how to continue this positive trend. It looks at what might be conducive to supporting business including more risk-taking, adaptation and innovation.
The speech then goes on to suggest that putting infrastructure investment on the G20 agenda was a key achievement of Australia's leadership of the G20 and explains why infrastructure investment could contribute to economic growth both in its construction phase and also by augmenting the economy's supply capacity in the long run. Finally, the speech reaffirms that Australia can maximise its economic possibilities through sustained efforts at adaptation and innovation, the willingness to take risks and development of the competencies to be effective in the modern global economy.