‘Unprecedented': The challenges Australian economists must solve

News.com.au

2 days ago

Australia needs new economic research to tackle the rolling challenges of trade tariffs, productivity slowdowns and climate change or risk living standards.
In a speech to mark the 100th anniversary of the Economics Society of Australia as part of the Australian Conference of Economists in Sydney, Reserve Bank deputy governor Andrew Hauser pointed to the challenges facing the economy.
Mr Hauser called the current issues 'unprecedented' but pointed to the lessons of the past in helping Australia solve them.
'Indeed Australian macroeconomic research has pulled that trick off twice,' he said.
'First, powering the ideas that lifted the country out of the Great Depression to flourish after the Second World War.
'And, second, helping to design a reform program that rescued the country from the slump of the 1970s, and led to more than a quarter century of recession-free growth.
'Two Golden Ages, marshalling thought into action.'
Mr Hauser alluded to US President Donald Trump's tariff policy, which has now seen 14 countries receive letters dictating new tariff rates.
These include some of Australia's major trading partners, Japan and South Korea.
' … the tectonic plates of the global economic system are once more in flux, as free trade is rolled back; geopolitical alliances shift; climate change accelerates; and productivity growth slows to a crawl in most developed countries,' he said.
Earlier this week, the Productivity Commission said Australia could be a winner from the trade tariffs directly, although it warned the second order impacts of a trade war could hurt Australian living standards.
Productivity Commission deputy chair Alex Robson said the ensuing global uncertainty could 'affect living standards in Australia and around the world'.
'Uncertainty is a handbrake on investment – when businesses are uncertain about the future, they are less likely to invest,' Dr Robson said.
'Further retaliatory escalation could spiral into a broader trade war, which would bring serious consequences for Australia and the world.'
Mr Hauser also pointed to Australia's falling productivity as a key risk to living standards.
'One of the most profound issues of our time is how to reverse the productivity slowdown,' he said.
'Important work is underway on this topic in the public sector, some of it in conjunction with academia: for example, researchers at the Productivity Commission, Treasury and RBA have analysed the causes of the productivity slowdown, its links to competition, innovation and dynamism, and the implications for the wider economy.'
He said economics will need to go for the 'hat trick' with Australian academics helping to drive the next leg of economic growth.
Mr Hauser's speech follows a cautious RBA monetary board holding the official cash rate at 3.85 per cent following its July meeting, with the shock move defying expert commentators and predictions from the money markets.
The board voted 6-3 in favour of the hold but Ms Bullock, fronting the media after the 2.30pm decision, said the votes were 'unattributed' and declined repeatedly to reveal her position.
Prior to Tuesday's announcement, the money market had placed a 92 per cent chance on a rate cut off the back of weaker-than-expected economic data.
Mortgage holders will now have to wait until August at the earliest to get further interest rate relief.
bRight Agent co-founder Aaron Scott called the surprise hold a 'cruel blow' for millions of Australian homeowners.
'Despite the fact that a July cut would not have been enough to give most mortgage holders a meaningful reprieve, it would have been welcome by the millions of Aussies who are holding out for more cost-of-living relief,' he said.