Indeed , thus far , the transition ( at the national and state level ) to more balanced economic growth has been assisted by new residential investment , in turn spurred by the lower Australian dollar and loose monetary policy from the Reserve Bank . However , there is only so much lower interest rates can do to spur private investment , particularly if sectors are already oversupplied , demand growth is weak and there is a general lack in business confidence . The residential boom is already running out of puff at a national level , and will also fall back in Victoria . BIS Oxford Economics expects residential investment to undergo substantial correction towards the end of the five-year period . Future demand will be impacted by an “ oversupplied ” housing market , higher house prices , rising household debt , tighter lending restrictions and foreign capital controls , and weak income growth .
Overall , growth in the national economy will stay soft until non-mining business investment picks up momentum sufficiently to become a primary driver of growth . So far , growth in general non-mining business investment remains weak , simply catching up on deferred investment and maintenance after the GFC setback . Stronger growth will not eventuate until business psychology switches to investing for growth .
A Role for Public Infrastructure Investment In this transitionary environment , public investment in productivity-enhancing infrastructure continues to be a sensible policy option across all states and territories . In certain circumstances , this policy push can be enhanced by debt funding according to IMF research 1 , real exchange rate depreciation and productivity enhancing reforms 2 .
These themes have been revisited by the Reserve Bank Governor , Philip Lowe , in public speeches through 2017 . In February , he noted several issues and challenges facing Australia and stated : decade . In our case , this has been partly due to a large increase in mining investment in response to soaring commodity prices .
In recent years though , as the new production made possible by all this investment has come on stream , the productivity figures have improved . This is clearly good news , although underlying productivity growth remains relatively modest .
A number of structural factors are at work here . If we do not address these factors , then we will have to adjust to noticeably slower growth in our average incomes than we have become used to . In some ways , this adjustment has already started and it is proving difficult .
On the more positive side , there is no shortage of things that could be done to lift our performance . The challenge is that most of these ideas require difficult political trade-offs .” 3
As a means of enabling productivity to lift , Philip Lowe highlighted the need for “ adequate high-quality infrastructure to help our citizens be as productive as they can and enjoy a high quality of life ”.
“ The growth in population is growing strongly which is a source of dynamism for our economy . But this growth can put strains on our infrastructure , including on transport infrastructure . These strains can reduce public support for a growing population . They can also impair our ability to compete and to be as productive as we can be . Good transport infrastructure , for example , opens up opportunities for people and opens markets . It also improves communities . Investment in transportation infrastructure can also play an important role in addressing housing affordability , which is an increasingly important issue .” 4
“ The first is to reinvigorate productivity growth . Australia , like many other advanced economies has experienced slower productivity growth over the past
1
IMF ( 2014 ) World Economic Outlook , October , pp . xvi , p77 .
2
Garnaut , R . 2015 “ We Need a Plan to Revive The Economy ” Australian Financial Review , 8th April , p8 .
3
P . Lowe , Dinner Remarks to A50 Australian Economic Forum , Sydney , 9th February 2017 . http :// www . rba . gov . au / speeches / 2017 / sp-gov-2017-02-09 . html
4
Ibid .
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