Scene set for growth: RBA

Central bank governor Glenn Stevens was doing his bit to talk up the economic outlook in his biannual testimony to a Parliamentary committee this morning.
While prolonged uncertainty about key Budget measures is undoubtedly weighing on consumer and business sentiment, Stevens had a more reassuring message regarding the country’s growth prospects.
In short, the RBA governor thinks many of the basic building blocks necessary for a solid expansion are in place – funding costs are down, lenders are competing for business, household wealth is growing (despite rising unemployment and weak wage growth), the population is expanding and Australia remains linked in to the most economically dynamic region in the world, including strong 7.5 per cent annual growth in its biggest trading partner, China.
Added to this is the search by investors worldwide for higher yields (part of the explanation for Chinese interest in the Australian property market).
So what is holding things back?
Like a massive game of chicken, businesses and investors are waiting on someone else to be the first to take the plunge and gamble that now is the right time to begin expanding.
It is no wonder they hesitate. For the past five years, survival has depended on a conservative approach to risk – the search for growth has played second fiddle to the security of term deposits and other low risk ventures.
According to Stevens, many businesses are more intent on paying out dividends and returning capital to shareholders rather than dusting off plans for growth.
But, he has sought to assure us, such a period of risk-aversion is nothing new and will – at some indeterminate point – come to an end.
“It’s pretty normal at this point of the cycle,” Stevens told the House of Representatives Economics Committee in Brisbane. “There is always a period in which people can see that many of the conditions for expansion are in place, but aren’t yet fully confident it will happen.”
There are good reasons to hesitate. Risk and uncertainty abounds for those looking for it – an unresolved federal Budget, fragile economic conditions in Europe, geopolitical tensions in north Asia, turmoil in Iraq, Syria and Ukraine, and political gridlock on many important issues in the US.
But Stevens, in Ian Drury fashion, sees reasons to be optimistic, if not quite cheerful.
“Business will need to respond to trends that foreshadow sustainable increases in demand and incomes,” he said. “At some point, if these responses start to gather pace, the sorts of forecasts we are setting out at the moment will very likely prove to be conservative.
“The frustrating thing is that no one can say when that will happen, or just what might be the proximate trigger.”
As Rachel Hunter might have put it, “It won’t happen overnight, but it will happen”.
It means official interest rates are not going to go anywhere for some time yet.


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