Reserve Bank: We don’t need ‘creative destruction of a recession’

Reserve Bank board member Luci Ellis has said should stop searching for the next mining boom or “an identifiable engine of growth” and accept that future economic prosperity will come from several directions.

Dr Ellis said there were challenges for any small, open economy, but rejected any suggestion that a recession could generate positive outcomes.

“Economic growth is far more conducive to innovation than recession is,” she said. “Recessions do not engender creative destruction. They produce liquidations, which are destructive destruction.”

Dr Ellis, the Reserve Bank’s assistant governor [economic], said most of the recent growth had been in household services such as health and education, which led some people to dismiss it as “bad growth”.

“Are people presuming that it’s all driven by the public sector and therefore somehow artificial? Or is it that they think jobs in service industries are low-skill, low-wage jobs and therefore bad jobs?” she asked the audience at the annual Stan Kelly Lecture in Melbourne

“There also seems to be a presumption that the n economy needs a special something, an identifiable engine of growth.” Sustainable growth

She said growth in health and education sectors could provide sustainable growth, driving productivity and welfare in other areas.

Dr Ellis highlighted similarities in the economy between the resources boom of the 1980s and now that would eventually result in higher wages.

“Then, as now, there were concerns that our prosperity might be based on too narrow a foundation,” she said. “Even around the turn of this century, I remember foreign investors telling me that was an old economy.

“This time around, the role of foreign investment in the funding boom has been less controversial, the labour market has probably adapted to the shock more quickly.”

On Wednesday, another weak wage growth result threatened to tighten much-needed consumer spending, with even a bump in the minimum wage failing to kick the result beyond a 1 percentage point annual increase.

Figures from the n Bureau of Statistics on Wednesday showed the wage price index rose 0.5 per cent in the third quarter, missing economists’ forecasts of a 0.7 per cent increase.

Annual wage growth bumped up to 2 per cent, from a record low of 1.9 per cent, but that was again short of the 2.2 per cent forecast, barely keeping its head above inflation at 1.8 per cent. Risk to inflation

“There is little to suggest wages growth will pick up much in 2018 and into 2019,” said Su-Lin Ong, head of n economics at RBC Capital Markets.

“That hints at downside risk to inflation and we stick to the view rates will remain at 1.5 per cent for all of next year.”

For private sector workers, annual wage growth hit 1.9 per cent, while no industry got a pay rise above 3 per cent, despite the relatively strong gains in healthcare and education. Mining hit a pitiful 1.2 per cent, well below the cost of living.

The problem is not unique to as many countries in the developed world are battling low wage growth.

Dr Ellis said ‘s tight labour market would help make companies think about how to do things more efficiently.

“Around the world, the conversation is turning to issues of inequality and inclusion,” Dr Ellis said. “The focus must be on on the end goal, the welfare of the population. If a specific reform doesn’t deliver that, it ought to be modified, whether through explicit safety nets or other means.

“Next time somebody asks ‘where’s the growth going to come from?’, the answer is ‘from all of us, trying new things, and gradually getting a bit better at what we do’.”

???The Aussie dollar instantly slid a third of a US cent to a four-month low of US75.96?? after the low wage growth data pushed out the probability of an interest rate hike to 2019.

With Peter Martin and Reuters

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