Reserve Bank offers a VERY bleak prediction about Australia’s future

The Reserve Bank has offered a gloomy view of Australia’s economic future in Michele Bullock’s first week as governor – including a warning of high inflation if workers are not more productive.

Australia is already in a per capita recession where output per individual has declined for two consecutive quarters – something that last happened in 2020 during the Covid lockdowns.

Productivity is also falling, with gross domestic product per hour declining in four of the last five quarters.

A fall in productivity, accompanied by rising wages, means that costs are passed on to consumers, leading to higher inflation.

A Reserve Bank paper released on Friday raised concerns that low productivity could hurt Australian consumers, who are already facing 12 interest rate hikes since May 2022.

“Recently, unit labor costs have risen sharply, reflecting higher nominal wage growth and moderate productivity growth,” the report said.

“If sustained, this strong growth in unit labor costs would contribute to persistent inflationary pressures.”

Inflation has moderated to 4.9 per cent, but is still well above the Reserve Bank’s target of 2 to 3 per cent.

The Reserve Bank expects it to remain above the target range until June 2025, but report authors Angelina Bruno, Jessica Dunphy and Fiona Georgiakakis warned inflation could remain high longer if productivity did not improve.

“Currently, wage growth forecasts are consistent with inflation returning to the Reserve Bank’s target range if productivity growth returns to its pre-pandemic trend,” they said.

“Recent productivity results have been weaker than this and continued weakness poses a major risk to the economic outlook.”

Average productivity growth has remained below 1 percent over the past decade, well below the 2 percent in the 1990s.

But since the pandemic, productivity growth has deteriorated even further, falling 3.6% in the year to June, with national accounts data showing the first recession per capita since the 2020 coronavirus-related lockdowns. Covid.

The RBA paper also suggests Australian businesses should adopt new technologies as an aging workforce struggles to be productive.

“Some international research suggests that labor productivity declines as the share of older workers increases, reflecting lower levels of innovation, entrepreneurship and adoption of new technologies,” they said.

“However, Australian entrepreneurs tend to be older than in other advanced economies.

“Furthermore, population aging will likely put pressure on labor supply and increase incentives for businesses to adopt new labor-saving techniques, which will have an offsetting impact .”

But another Reserve Bank paper by Kim Nguyen and Jonathan Hambur, also released Friday, said productivity benefits from new “general purpose” technologies, including artificial intelligence and data-based software cloud, that would be years away.

“This suggests that some of the initial optimism that the pandemic could lead to continued increases in digital adoption and productivity growth may be overblown,” he said.

A Reserve Bank paper released on Friday raised concerns that low productivity could harm Australian consumers, who are already facing 12 interest rate hikes since May 2022 (pictured, a traffic controller in Sydney).

The report’s authors said early adoption of new technologies at the start of the Covid pandemic had been “short-lived”.

“The share of companies adopting cloud-related technologies increased sharply during the Covid-19 pandemic,” they said.

“However, the rate quickly reversed, indicating that this was a temporary increase in adoption rate and… not a long-term trend change.”

They analyzed the annual reports and earnings calls of companies listed on the Australian Securities Exchange.