Treasurer of Australia Josh Frydenberg says the International Monetary Fund is confident the country remains on course to deliver steady economic growth after giving it a ‘big tick’ and praising its ‘robust’ and ‘resilient’ economy, despite emerging downside risks.
IMF warned on Monday that Australia’s wages are now projected to grow by just 0.3% during the next five years, which is short of the 1.8% average recorded since the 1960s. The global financial institution also projected overall economic expansion of 2.6% from 2020, which is below the Treasury’s forecast and the government’s ‘sustainable’ 2.75% target.
Despite the modest projections, Frydenberg believes the IMF is largely positive about Australia’s economy in general. The monetary and trade body said the country’s infrastructure and labor markets are worthy of praise in a time of global economic uncertainty, but tempered its enthusiasm by warning that stagnant wages and a slump in the housing sector could soon become a problem.
‘They said Australia had robust and resilient economic growth, it was above trend,’ Frydenberg said in an interview with Sky News on Tuesday. ‘So, the IMF gave Australia a big tick in terms of its economic performance and praised our infrastructure spending and, of course, our overall fiscal management.’
‘Australia’s had gradual wages growth, 2.3% in the latest wages price index numbers,’ Frydenberg added. ‘The Reserve Bank has said we have started to see an upswing in wages. The government has said very clearly and publicly we’d like to see stronger wage growth. But what we’re seeing in Australia isn’t too dissimilar, for example, to what they’re experiencing in the United Kingdom with strong jobs growth but wages growth being gradual.’
Analysts have warned that a weakness in growth for real incomes and a potential slowdown in living standards could become a reality during the next six years unless new economic reforms and tech innovation lay the groundwork for a productivity boom not dissimilar to the one seen 20 years ago.
Deloitte Access Economics partner Chris Richardson lays the blame of stagnant growth on the inability of successive Coalition and Labor governments to make the necessary changes to boost productivity. In particular, a dearth of tax, competition, industrial relations and innovation reforms have held business back since the mid-2000s.
Mr. Richardson added: ‘There has been little economic reform from either side of politics for many, many years and productivity growth is not what it was.’
Stephen Anthony, Industry Super Australia chief economist hopes the latest rebuke of certain aspects of the domestic economy by IMF will prompt the Coalition and Labor to take another hard look at economic reform. He believes the quality of spending and revenue measures must be improved and that a ‘suite of policies’ for the issues outlined by Mr. Richardson could be the solution.
Leading economists also said there is a degree of self-harm to some of the policies that have been implemented by politicians in recent years as they are actively lowering productivity at a time when it is needed to support economic expansion. They said the tax regime that looks more favorably on SMEs, cash handouts to votes, and interventions in the market are just three of the harmful policies.
Reserve Bank governor Philip Lowe expressed his frustration at the fall in wages over the weekend and warned that a steady decline in the short to medium term could lead to weaker consumption, which will hit the economy further. He also urged politicians to focus on reforms that can enhance productivity and drive household incomes higher this year.