Here's a brutally simple number to watch in Australian economics, from an RBA board member

Australian GDP data today showed the economy growing at 2.5% for the year to December.

A member of the Reserve Bank of Australia’s board, John Edwards, has given a blunt assessment of what that means for Australia’s economy to James Glynn at the Wall Street Journal. He said:

“We’ve still got a rapid rate of growth of the workforce and GDP growth is just not quick enough to keep up with it. There is no doubt at this rate of 2.5%, it is below the rate that is necessary to prevent a rise in unemployment.”

Edwards’ assessment is GDP needs to be rising by “at least” 3% to keep pace with the growth in the workforce.

So three, as the song says, is the magic number to look for in Australia’s economic growth. Around that level should stop the unemployment rate ticking up from its current 6.4%. Continually rising unemployment has the potential to cause all sorts of problems, increasing pressure on the federal budget bottom line through an increased welfare burden, and just generally reducing consumer activity.

Edwards also suggested the growth in housing prices was a critical factor in the RBA’s surprise decision to keep the official cash rate on hold at 2.25%, when the market was expecting a cut.

“The last thing you want to see is monetary policy having a stimulatory effect in driving up house prices,” he said.

Click here to read the full article at the WSJ (login required).

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