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Lowe pleads for high spending and wages from big business

Business

Reserve Bank Governor Philip Lowe has pleaded with big business leaders to open their wallets and start investing and warned that Australia’s long crawl out of a sluggish economy was being hampered by a lack of spending and poor wages growth.

 

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He also had bad news for wage earners when he warned that wage growth was still too low and it could be as long as three years before it returned to an acceptable level.

Wages growth is currently running at just 1.4 per cent, the lowest rate on record.

Lowe said investment was one area of the economy that was failing to kick into gear, despite strong consumption and was needed to drive employment and wage growth.

He even gave business a checklist of sectors where they could invest telling a conference in Sydney there was no shortage of areas where businesses could put their money.

“Looking across the economy, there are investment needs and opportunities in areas as diverse as infrastructure, power generation and distribution, health and social services, food production, advanced manufacturing and digitalisation and data science,’’ Lowe said.

Lowe said business investment was still 7 per cent below the level of a year ago and “over 10 per cent below where we thought it would be at the start of last year’’.

“Non-residential construction is especially weak, with the forward-looking indicators suggesting that this is likely to remain so for a while yet,’’ he said.

“A durable recovery from the pandemic requires a strong and sustained pick-up in business investment.

“Stronger investment would also support a more productive workforce and a lift in both nominal and real wages.

“For both wages and prices, there is still a long way to go to get back to the outcomes we are seeking.’’

Lowe also said there was no mood within the Reserve Bank to lift the official cash rate and it would not be swayed by forecasts.

“Before we adjust the cash rate, we want to see actual inflation outcomes in the target range and be confident that they will stay there

“Over the past couple of weeks, market pricing has implied an expectation of possible increases in the cash rate as early as late next year and then again in 2023. This is not an expectation that we share.

“For inflation to be sustainably within the 2 to 3 per cent range, it is likely that wages growth will need to be sustainably above 3 per cent.

“Even before the pandemic, wages were increasing at a rate that was not consistent with the inflation target being achieved. Then the pandemic resulted in a further step-down. This step-down means that we are a long way from a world in which wages growth is running at 3 per cent plus.”

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