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‘Extraordinary skill’ needed in Aus economy management
With Australia on the edge of its seat as the August cash rate call looms, one economist has praised the RBA for its “extraordinary skill” in managing Australia’s economy until now and enabling 28 years of continuous economic expansion.
‘Extraordinary skill’ needed in Aus economy management
With Australia on the edge of its seat as the August cash rate call looms, one economist has praised the RBA for its “extraordinary skill” in managing Australia’s economy until now and enabling 28 years of continuous economic expansion.
Erik Norland, the executive director of CME Group and a senior economist, said the RBA “will have to continue operating with extraordinary skill to see its way out of Australia’s twin problems of excessive household debt and high housing prices”.
Mr Norland highlighted that “no developed economy has matched this track record over the same period and only a few emerging market nations, like China, can claim to have had longer expansions”.
Predicting that a 2008-style US financial meltdown is “not on the immediate horizon for Australia”, the economist explained that “the US real estate bubble didn’t pop by itself”.
“The Fed had a hand in it by raising rates 17 times between mid-2004 and mid-2006,” he continued.
By contrast, Mr Norland said the RBA is taking the opposite approach, “preventively easing policy, apparently in the hopes of stabilising real estate prices and preventing a rapid decline in the real value of residential property that would impair the value of the banks’ collateral on residential mortgages”.
Considering, too, the potential for a fall in commodities prices based on Australia’s heavy reliance on commodities “with extremely volatile prices”, the economist said “even if Australian debt is too high and if commodity prices do in fact slide, that doesn’t necessarily mean the end of Australia’s 28-year expansion is nigh”.
Rather, Mr Norland considered that it would more likely mean “continued easing from the RBA and a weaker AUD, both of which may insulate the Australian economy and extend the expansion even under otherwise unfavourable external and internal conditions”.
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