Bloomberg Businessweek June 10, 201937ILLUSTRATION
BY
HELENA
COVELL.
BRENDON
THORNE/BLOOMBERG
THE BOTTOM LINE Australia’s remarkable 28-year-long growth
run is losing steam because of slowing immigration, falling housing
prices, and the U.S.-China trade war.and commodity boom, and there’s a question mark
hanging over what drives growth next,” says Su-Lin
Ong, head of economic and fixed-income strategy
at Royal Bank of Canada in Sydney.
The Reserve Bank of Australia trimmed its
benchmark interest rate to an historic low of 1.25%
on June 4, and traders expect at least one more
cut this year, as the central bank moves to but-
tress employment and nudge inflation to its target
of 2% to 3%. U.K. and European investors, who’ve
watched their own central banks push down rates,
are certain that RBA Governor Philip Lowe isn’t
done easing, Ong says. “They’ve seen that movie,
and they doubt Australia is really any different.”
Just like all the rest. That’s something Australia
isn’t used to hearing, particularly after it man-
aged to avoid being swept up in the Asian financial
crisis, the early 2000s tech wreck, and the 2009
global recession. “The next world shock, we don’t
escape,” says Bob Gregory, a professor at Australian
National University in Canberra who’s studied the
economy for half a century. “But even without
that, I’d say there’s a 90% chance the economy
and employment growth slow from here because
our boost from China and immigration is waning.”
Doubts about the country’s prospects are evi-
dent in the Australian dollar, which has lost 25% of
its value against the U.S. dollar in the past five years.
Growth decelerated sharply in the second half of
2018 and remains subpar. Gross domestic prod-
uct expanded by an annual 1.8% in the first quar-
ter, almost a percentage point below the economy’s
speed limit. The escalating trade war further clouds
the outlook: Australia is the most China-dependent
economy in the developed world. Nearly 40% of the
country’s exports are destined for China.
Lowe, who’s kept the benchmark rate at 1.5%
since assuming his post in September 2016, used
the record-long pause to try to deflate housing
prices and stem a surge in household debt. He’s
also spoken out about nonmonetary ways to bolster
growth, urging companies to seize on investment
opportunities, governments to embrace a reform
agenda that prolongs the expansion, and workers
to set aside fears over job security and demand
higher wages.
Apart from persuading federal and stateinstabilitythatmadeit toughtopulloffambitious
reforms, such as curbing greenhouse-gas emis-
sions and overhauling the tax code. Putting a floor
under the housing market—where prices are down
almost 15% from their 2017 peak in Sydney—and
more cash into households’ pockets will be near-
term priorities.
The world’s most important central banker still
believes in the Australian growth story. Federal
Reserve Chairman Jerome Powell has consistently
rebutted questions about the inevitability of the
record U.S. expansion coming to an end by point-
ing to the experience Down Under. “Business cycles
don’t last forever, I guess unless you’re Australia,
where they’re in Year 27 of their expansion, which
sounds like forever,” he told attendees at an event
organized by the Economic Club of New York in late
November. —Michael Heath, with Garfield ReynoldsDATA:AUSTRALIANBUREAUOFSTATISTICS,INTERNATIONALMONETARYFUNDNo Longer World-Beating
GDPgrowth,yearoveryear
Australia World1Q 1991 4Q 2018-3036%○ Lowegovernments to take advantage of cheap financing
to increase spending on infrastructure, Lowe has
had little success. That doesn’t mean the RBA
chief hasn’t won admirers along the way. “Those
speeches have been very interesting, sort of ‘Get
your act together, you guys,’ which is remarkable
for a bank governor, because 20 or 30 years ago that
would’ve caused a stir,” says Gregory, who was on
the RBA’s board for 10 years.
The surprise reelection of Australia’s
center-right government may pave the way for
productivity-enhancing measures, such as scrap-
ping remaining tariffs and doing away with burden-
some quotas and licensing requirements in some
industries. Prime Minister Scott Morrison’s victory
gives him immense authority within his party and
may close the chapter on a decade of leadership