speech an economic update philip lowe [ * ] governor address to the armidale business chamber armidale – 24 september 2019 i would like to thank the armidale business chamber for the invitation to speak this evening. i grew up in regional new south wales – in cootamundra and wagga wagga – so it is a treat for me to have been invited to speak in another great regional city. thank you. tonight, i would like to provide you with an economic update. i will focus first on the global situation and then talk about the australian economy. and finally, i will make some remarks about monetary policy. the main message on the global economy is that while it is still growing reasonably well, the risks are increasingly tilted to the downside. the main source of these downside risks are geopolitical developments in many parts of the world. these developments are creating considerable uncertainty and this uncertainty is causing businesses to reconsider their spending plans. this is making the international environment more challenging for us. on the australian economy, there are two main messages. the first is that after having been through a soft patch, a gentle turning point has been reached. while we are not expecting a return to strong economic growth in the near term, we are expecting growth to pick up. against this backdrop, the main source of domestic uncertainty continues to be the strength of household spending. the second message is a longer - term one. and that is the fundamental factors underpinning the longer - term outlook for the australian economy remain strong. one of the ongoing challenges we face as a country is to capitalise on those strong fundamentals. the global economy this first graph shows global economic growth and the international monetary fund's ( imf ) forecasts for the next few years ( graph 1 ). looking at this graph, one might ask why the concern : global growth has been stable and reasonable over recent times and the imf is forecasting this to continue over the next couple of years. if this forecast were to come to pass, that would make for 12 years of solid growth. graph 1 looking at labour markets, one might also ask why the concern. unemployment rates in most advanced economies are the lowest they have been in many decades, and businesses are finding it more difficult to fill jobs ( graph 2 ). these tighter labour markets are finally translating into stronger wages growth, with wages now increasing at close to the rates seen before the financial crisis in some countries. with inflation remaining

to hold their money for them ( graph 7 ). the swiss government, for example, can borrow for 30 years at a negative interest rate of 0. 5 per cent. for the world as a whole, around a quarter of the total stock of government bonds on issue has negative yields. and where yields are in positive territory, they are at very low levels and in many cases at the lowest on record. graph 7 all this is making for a challenging international environment. the australian economy i would now like to move to the australian economy. over recent times, our economy has been going through a soft patch. over the year to june, gdp grew by just 1. 4 per cent, which is the slowest year - ended growth for some years ( graph 8 ). we did not expect this slowdown, so it has come as a bit of a surprise. graph 8 it is important, though, that we keep things in perspective. the economic expansion in australia has now been running for 28 years. that is quite an achievement. over such a long expansion, there are going to be ebbs and flows in growth. there are also going to be periods where growth is stronger than expected – as it was in the first half of 2018 – and other periods, like now, where growth is weaker than expected. with the benefit of hindsight, there are a few factors that help explain the slowing in the australian economy over the past year. one is the international developments that i spoke about earlier. while australia has been less directly affected by the us – china trade disputes than have many other countries, there is an indirect effect through slower global growth and increased global uncertainty. a second and more important factor is weak consumption growth. over the past year, there has been no growth at all in consumption per person, which is an unusual outcome at a time when employment is growing strongly ( graph 9 ). an important part of the explanation here is that household disposable income has been increasing only slowly for an extended period, reflecting both subdued wage increases and strong growth in taxes paid. graph 9 the persistence of slow growth in household income has led many people to reassess how fast their incomes will increase in the future. as they have done this, they have also reassessed their spending, particularly on discretionary items, which has been quite weak over recent times ( graph 10 ). not surprisingly, spending on household essentials has been much less affected. graph 10 another part of the