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We’re not getting pay rises, and it’s a drag on the economy

Guy Debelle, RBA

Low growth in income household is likely why our national GDP figures came in lower than expected, according to the Reserve Bank. This begs the question: is a projected surplus actually a sign of a healthy economy?

In a speech this week, governor of the central bank Guy Debelle presented the RBA’s assessment of Australia’s current economic situation.

He made note of the tension between the differing states of GDP, labour and business conditions.

Stagnating wage growth has been a major contributor to slowing inflation, according to the RBA.

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The RBA wants to see a rise in wages, while aiming for inflation to increase to a ‘sustainable’ target range of 2-3 per cent.

While Australia’s GDP has been weak, the labour market has been strong, with the unemployment rate declining faster than the RBA had previously forecast.

“The two lenses on economic growth provided by the labour market and the GDP data are in stark contrast,” Mr Debelle said.

“A third lens, in the form of business surveys, sits in between the two. Business conditions have declined from their high levels of the first half of 2018 but still remain consistent with around trend growth in the economy.” 

Money in the bank, but so what?

The federal government has been touting a return to surplus next financial year, following the release of its federal budget last week. 

However, Deloitte Access Economics’ Chris Richardson points out that a surplus budget is not necessarily a sign of a healthy economy.

“The economy is getting better but the budget is getting worse,” he said in the lead up to the budget’s release.

In fact, Australia has been in a per capita recession for the last two quarters for the first time since 2006, according to the estimations of AMP Capital chief economist Shane Oliver.

 

We’re not getting pay rises, and it’s a drag on the economy
Guy Debelle, RBA
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