Earlier in December, the Governor of the Reserve Bank of Australia (RBA), Glenn Stevens, sat down with journalists from the Australian Economic Review for an annual chat on exactly where, economically, he thinks Australia and the world is headed. For the record, he is fairly happy that everything is below control, that abnormal terms of trade and growth are returning to their historical norm and that we are not and are not most likely to be in recession in the foreseeable future.
A short summary of some main points touched on in the AFR interview are as follows:
On the exchange price: Mr Stevens would like to see the worth of the Australian dollar drop a tiny additional and expects it to be reduced over the next twelve months. He expects this to alter consumer spending behaviour by shifting some of our overseas-primarily based purchases back to domestic producers.
To quote: “Longer-term, we’ve come from US$ 1.05 to now US82¢ and that was a extremely elevated level, extremely unusual. Certainly unsustainable and it hasn’t been sustained. And some additional adjustment is going to have us significantly far more like normal historical levels, at least against the US dollar and possibly some of the others. But I believe that process is not but comprehensive. It has a bit further to go.”
On interest prices: Regardless of current media commentary on the possibility of a price reduce in 2015, Mr Stevens was clear that he’s not expecting either a tightening or relaxing of monetary policy in the close to future.
To quote: “In my view, more than the past year or so, I have been asking myself what can we do that will be most conducive to supporting self-assurance, predictability, the sense that men and women can make some plans for their enterprise, their own life, what ever it may well be. And the view I came to fairly early on was: what we should be carrying out is providing a message of stability and predictability insofar as we can.”
On oil costs: The recent fall (major due to improved provide as opposed to falling demand) is good! Unless you are a producer, of course, but the vast majority of folks aren’t. Falling oil costs are, in Mr Steven’s view, excellent for international growth.
To quote: “Cheaper all-natural resources and power is in fact good for worldwide growth. So I’m a bit reluctant, I should say, to get also pessimistic about the worldwide outlook on that score.”
On the domestic economy: It’s great! We want to enhance our terms of trade and our politicians require to start off speaking the genuine speak on how we are to collectively afford some of the expensive initiatives the Australian public want, but unemployment is manageable, inflation is controlled and our credit rating remains excellent.
To quote: “I guess what we’re attempting to say is let’s have the adult conversation about these items ahead of we get to that day if we possibly can. It would be very disappointing if what we uncover is we can’t have it until we are in a crisis.”
On the term” earnings recession”: It’s just arithmetic!
To quote: “The use of the term “income recession”, I think, is the latest inventive way of employing the R-word, to locate an adjective to put in front of it. The arithmetic is such that it wouldn’t matter how quickly the economy was developing. If you get a huge sufficient fall in the terms of trade over 2 quarters you will be capable to say we’ve got an earnings recession. That’s just arithmetic. Much more substantively, what’s really is happening is the buying power of Australians over foreign goods and services that outcome from what we export has gone down… The economy is not in recession, it’s not contracting, we’re not getting hundreds of thousands of jobs lost over a year. We’re not developing jobs very as swiftly as we want to, but we’re not in a recession.”
You can study the full transcript of the interview here.
Glenn Stevens: How Australia is tracking
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