Glenn Stevens is perplexed. Australians think less of their country than foreigners; a slight slowdown in China’s hypersonic growth rate has become a “major talking point”.
Addressing an Asian investment conference in Hong Kong the Reserve Bank governor said “viewed from abroad” Australia suffered only a relatively mild downturn in 2008-2009, made up the decline in within months, and continued to expand ever since.
But structural change brought on by the high dollar had fed a “sense of concern in some parts of the Australian community, and the tendency to focus on the difficulties rather than the opportunities”.
“This difference in perceptions between foreigners and locals is quite unusual,” Mr Stevens said. “For most of my career the difference has tended to be in the opposite direction. We always seemed to struggle to get foreign observers and investors to give us credit for performance we thought was pretty reasonable.”
While consumers responded to the higher dollar by heading overseas, some Australian producers found it threatening, correctly seeing it as a “global and ephocal shift”.
“Some sectors of the economy will grow in importance as they invest and employ to take advantage of higher prices. Other sectors will get relatively smaller. Structural adaptation is hard work. Few volunteer for it. But we have little choice but to do it,” the governor said.
While Mr Stevens did not rule out further cuts in interest rates in order to lift an economic growth rate he said was “only moderate”, he did rule out the use of interest rates to lift the maximum possible growth rate.
"Monetary policy cannot raise the economy's trend rate of growth," he said... "That lies in the realm of productivity-increasing behaviour at the enterprise, governmental and inter-governmental levels. This is increasingly being recognised in public discussion, but it is important we do more than just debate it."
Nor could monetary policy “obviate the pressure for the production side of the economy to change”. The exchange rate was “essentially given to us by the world economy” it was “not driven by any policy in Australia.”
Concern about the slowdown in China’s rate of growth was overblown.
“From 10 per cent to a mere 8 per cent! This is a major talking point and some see it as portending a major crash,” he said. “But some slowing was required to reduce inflation and put growth on a more sustainable path.”
“Even at the new growth target of 7.5 per cent, a lower target than in the past five years (all of which were, of course, exceeded) Chinese GDP will equal that of the United States, in purchasing power parity terms, in about a decade. It will exceed that of the euro area within the next few years.”
In today's Sydney Morning Herald and Age
. We need to talk about why Canberra plans a contractionary budget in a weak economy - Tim Colebatch
. Mining. Good for restaurants - RBA deputy
. 2004 all over again - rates on hold all year?
. Why the Reserve sat on its hands, why the banks might not