RBA Governor Glenn Stevens came as close as he is going to come to signal that he and his colleagues at the RBA have done what they can for the economy with monetary policy.
In his Opening Statement to the House of Representatives Standing Committee on Economics this morning Stevens paints a picture of an Australian economy that is healing and one that is growing outside the mining boom – exactly as low rates intend.
While he said that consumers are likely to retain their current caution and noted “it seems unlikely that households will revert to their behaviour of a decade ago, when they were expanding their balance sheets quickly, saving much less of their incomes and increasing their consumption well ahead of the growth in incomes” he did call on “animal spirits” to get the economy moving.
He said the economy is getting ready for expansion as people recognise the preconditions “for expansion are in place but aren’t yet fully confident it will happen”.
But it’s only a matter of time he said.
- not only are funding costs low, but banks want to lend and are competing to do so more actively than they have for some years;
- net worth per household has risen by about $120,000 over the past two years;
- the community’s monetary assets have risen by around 13 per cent – over $180 billion – over the same period;
productivity improvement in enterprises will presumably continue, and needs to do so. But there are actually a few runs on the board now;
- the level of gross investment in some sectors is barely above depreciation rates;
- the population is growing, meaning there will be more demand for housing, infrastructure and consumer goods and services;
- the dynamic of proximity to a rising Asia, with all its opportunities, remains.
All of which means that big business and crucially “smaller and newer players, most of which operate ‘below the radar'” will respond to the incentive by investing and creating growth.
If it all happens as he expects then “the sorts of forecasts we are setting out at the moment will very likely prove to be conservative”.
Stevens says it’s difficult to know when it will happen but clearly he thinks it will both here and around the globe.
That has to be good news for the economy.
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