SYDNEY — Despite the fastest interest-rate increase in history, Australia’s resource-rich economy still stands some chance of avoiding recession and achieving a soft landing, Reserve Bank of Australia Gov. Philip Lowe said Wednesday.
In testimony before the Australian Senate, Lowe said while wage growth remains relatively subdued and inflation expectations stay anchored, an economic contraction might not come about in the future.
“If wage outcomes stay in a reasonable ballpark, then I think we can manage what I think is a fairly soft landing,” he said.
The RBA expects wage growth to peak around 4.0% in the near-term, well below that of rates seen in other major economies.
Still, risks to the economy include the possibility that employers will award wage increases that match the current 7.8% on-year pace of inflation, Lowe said.
If that were to happen, it would trigger a damaging wage price spiral and lock in an even higher rate of inflation, he said.
“At the moment, we don’t really see evidence of that occurring… but there are risks here,” he said.
The RBA has raised the official cash rate by 325 basis points since May last year to combat the biggest surge in inflation in 32 years.
Lowe described the current inflation rate of 7.8% in 2022 as “way too high.”
The Australian Bureau of Statistics will publish fourth-quarter wage growth data in a few weeks.
Lowe said the peak in interest rates hasn’t yet been seen, and that he wasn’t certain where that would be, adding that he didn’t want to drive the economy into a recession.
Lowe said the goal would be to retain some of the recent gains in the job market, which included a fall in the unemployment rate to its lowest levels in nearly 50 years.
“We have an open mind.. ..I don’t think we are at the peak yet (in interest rates). How far we have to go up, I don’t know,” he said.
With pain rising across Australia’s highly-indebted mortgage market as interest rates have increased, Lowe has faced calls for him to resign in recent weeks.
Treasurer Jim Chalmers has failed to publicly endorse Lowe, telling reporters that all options were on the table in terms of the future of the RBA.
Still, Lowe said he would complete his seven-year term as governor, which concludes in mid-September.
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The Reserve Bank of Australia (RBA) Governor, Philip Lowe, has stated that the Australian economy has the potential to perform a “soft landing” in upcoming months despite the current economic headwinds of global trade-tensions and continued market volatility.
In an exclusive conversation with Dow Jones Newswires, Governor Lowe highlighted that the status quo of Canada’s economic performance has remained recognizably stable throughout the unpredictable global economic environment. Lowe added that an increase in consumer spending and construction activity has aided the overall economic resilience.
The Governor’s statement piggybacked off of the RBA’s most recent economic estimates, which projected that the Australian economy will perform steady at 1.6% until the third quarter of 2019, with a gradual improvement in the economy through 2021.
Though the RBA have taken a number of preemptive measures to ensure the economy’s underlying health, Governor Lowe suggested additional fiscal initiatives as an important tool in responding to any potential adverse economic effects. This includes trickle-down effects of the current tax cuts, and potential interest rate rollbacks if necessary.
The Governor also pointed towards the success of the country’s strong job market, with Australia’s operations achieving a record 11th consecutive month of employment growth notably due to increases in professional services and health care workers.
His comments came in the backdrop of yet another wage stagnation report indicating that wage growth has been largely stagnant and noncommittal, leaving Governor Lowe to propose new progressive labour market fiscal policies. Overall, the Governor was optimistic about the country’s ability to achieve a sustained economic soft landing in the following quarters.
