Australia's central bank chief optimistic, but not too precise, on economy
Reserve Bank of Australia governor Glenn Stevens says fundamentals in place for a pick up in economic growth
Australia's top central banker on Tuesday laid out a generally upbeat outlook for the economy over the next couple of years, but at the same time castigated markets for overreacting to minute changes in forecasts which were by their very nature imprecise.
Rather, Reserve Bank of Australia (RBA) governor Glenn Stevens urged a greater focus on larger global forces including demographics and technological change.
“One can't help but observe that, in common discussion about the economic outlook, we too often ignore the influence of demography,” Stevens told a dinner of business economists.
Instead, there was far too much focus on every change in the RBA's economic forecasts no matter how small.
“This fervent desire for precision is not supported by any demonstrated accuracy of economic forecasts,” said Stevens.
“Its cousin, a hankering for policy fine-tuning, is barely, if at all, better supported by the historical outcomes of economic policymaking,” he added.
The central bank has recently resisted pressure to cut interest rates again from already record lows of 2 percent and expressed doubt that easier policy would do much good.
Stevens did reiterate that there would be scope to move again if needed given inflation was surprisingly restrained.
Yet he also said the fundamentals were already in place for a pick up in economic growth over the next couple of years.
“A number of data points over recent months suggest that prospects for firmer conditions in the non-mining economy are improving,” he said.
Surveys of business activity were above long-run averages and firms seemed to have stepped up their hiring. Employment, hours worked, and vacancies were all rising and unemployment had been stable for months.
On the longer term outlook globally, Stevens noted China's demographics were not favourable with the total working-age population set to shrink over the years ahead.
In contrast, India's working age population would exceed China's within a decade and make the country a much more prominent actor in the global economy.
Stevens reckoned global interest rates would remain very low for much of the decade ahead, even if the Federal Reserve soon raised US rates as was likely.
A world of low rates would make it harder to ensure adequate retirement incomes, perhaps leading people to take more risks in their portfolios.
“Part and parcel of the same adjustment may be higher real wages for the smaller proportion of the population that is working,” said Stevens. “These changes, driven by demographics, may require some adjustment to our collective thinking about what is 'normal'.”