glenn stevens : economic conditions and prospects speech by mr glenn stevens, governor of the reserve bank of australia, to the american chamber of commerce ( qld ) amcham iinet business luncheon, brisbane, 3 april 2014. * * * i thank alexandra rush for assistance in compiling these remarks. thank you for the invitation to be in brisbane again. economic conditions in queensland have been quite varied over recent years. in some ways the forces at work have been in parallel to those in the national economy. on the one hand, the expansion of the mining and gas sectors has driven strong growth in some of the regions. in the past four years, business investment in queensland rose by 75 per cent, totalling $ 230 billion over that time and almost $ 70 billion during 2013 alone. the proportion of national investment occurring in queensland has been unusually high. investment in the mining sector may now have peaked, but the capacity put in place is supporting strong growth in exports. queensland ’ s coal exports reached record highs over the past year and exports of lng are expected to commence in late 2014. on the other hand, more prudent behaviour by households, after an earlier period of fairly free spending and borrowing, has kept demand in the urban areas more restrained. there was also a marked slowdown in the property sector in the southeast of the state, perhaps more so than in other states, which has been a dampener on economic activity. part of the story here is that in an earlier environment of fairly easy access to credit, dwelling prices rose too high relative to incomes in some areas. there was also perhaps, in some instances, too much construction of the wrong sort of dwelling. some people involved in or exposed to the property sector also had too much leverage. when credit conditions tightened and there were not enough buyers, prices fell and construction slowed down significantly. after growing at an annual average pace of 12 per cent between 2002 and the peak in late 2009, dwelling prices in brisbane fell and remain around 5 per cent below their peak. about a third fewer dwellings were constructed in the year to september 2013, compared with the peak in 2008. building approvals have been relatively strong in the resourceexposed regions in recent years, but elsewhere in queensland approvals for new detached houses are at around half the 2008 level. this is something that american members of amcham who are exposed to the us housing sector would have also felt over recent years. the us construction sector, while now established on the path of recovery

it was at its peak in the 1990s. it ’ s worth noting that none of those additional net jobs came from manufacturing. 2 the manufacturing sector in fact shed about 100, 000 jobs over that 20 - year period. but other sectors increased their employment. mining employment tripled and that alone more than offsets the reduction in manufacturing, without taking into account the growth in construction, health care and a number of other services sectors where the number of jobs has roughly doubled. as of today, even with some recent weakness, there are more jobs in the economy than ever before. the second thing to say is that, cyclical things aside, the more likely problem in the mediumterm future won ’ t be one of not enough jobs, but instead, not enough workers. at present the number of new entrants to the labour force after finishing education each year exceeds the number retiring. ten years from now those numbers could be roughly equal, absent a further rise in labour participation in the older cohorts. the question will be less “ where will the jobs come from? ” and more “ where will the workers come from? ” it ’ s true that migration adds to the workforce as well, though migration also adds to the number of people not working and retiring. so demographic trends point in the direction of a smaller proportion of the population working, and a larger proportion needing support in their later years, even as other demands on the public finances for the provision of social goods increase. that looks like a pretty uncomfortable combination of trends. how do we reconcile them? the answer – the only answer – is growth. to some extent we will, hopefully, be able to lessen the problem through higher labour participation, for longer. but most of all we will need higher productivity of those working. that means making the system as flexible as possible and as encouraging as possible to innovation. that ’ s why the g20 agenda is very pertinent for australia, notwithstanding that we have enjoyed 20 years of reasonably steady growth. i dare say it is for the united states too. we are not just talking idly about other countries lifting their growth as an intellectual exercise. we are asking how to lift our own trend growth performance. for australia, one potential source of productivity improvement lies in the very fact that across a range of sectors the level of us productivity is much higher than our own. there may be various reasons for that, some of which we may be unable to emulate. but it ’