The Reserve Bank governor, Philip Lowe, has tempered warnings the government must do more to stimulate the Australian economy following a meeting to discuss infrastructure spending with the treasurer, Josh Frydenberg.
In remarks after the two-hour meeting on Thursday, Lowe agreed “100% with [Frydenberg] that the Australian economy is growing”, reframing his calls for structural reform as motivated by a desire to ensure “Australia remains a great place for businesses to expand, innovate, invest and employ people”.
The remarks smooth over a period of public difference between Lowe and the government, in which Frydenberg has said existing budget measures are sufficient to stimulate the economy while Lowe called for “further investments” in infrastructure to soak up spare capacity in the economy.
The Australian economy grew by just 0.4% in the March quarter, contributing to a 10-year low growth rate of 1.8%, and two consecutive cuts in the cash rate of 0.25% by the RBA in June and July.
In the latest decision, the RBA has suggested its aim is to drive unemployment lower than 5.2% and lift wages to help move inflation into the 2%-3% target band.
Consumer sentiment has fallen to a two-year low despite the interest rate cuts and the passage of the Coalition’s $158bn income tax cut package.
Speaking after the meeting called by Frydenberg in Melbourne, Lowe said “the Australian economy is growing and the fundamentals are strong”.
“The outlook is being supported by our lower interest rates, by your tax cuts, by higher levels of investment in infrastructure, by a pickup in the resources sector and the stabilisation of the housing market in Sydney and Melbourne,” he said. “But I don’t think we should forget that more Australians have jobs today than ever before in Australian history. That’s a remarkable achievement.
“And I also agree with you that a priority is to make sure that Australia remains a great place for businesses to expand, innovate, invest and employ people and I’m sure we can do that.”
Frydenberg acknowledged headwinds including soft household consumption, trade tensions between China and the US and the impact of drought and flood.
But the treasurer said that the combination of tax cuts, the interest rate cuts, infrastructure spending, loosening of lending restrictions by Apra, and the pick-up in mining investment would be “good news for the Australian economy”.
Frydenberg said he had discussed the government’s $100bn infrastructure package with Lowe, in a “detailed and productive discussion about that pipeline of infrastructure spending – in particular, the projects that are underway, the timing of those projects, the funding of those projects, and how those projects will boost the overall productive capacity of the economy”.
“So what we’ve agreed on today is that Australia remains a great place to invest and to employ people and we’re going to work together, the government and the RBA, to ensure that continues to be the case.”
Frydenberg told Sky News that Lowe “understands that the pipeline is very strong and … there are some capacity constraints in delivering some of these infrastructure projects because of the demand for skills and materials”.
“But he and the government are at one when we continue to look for new infrastructure projects that are going to be in the best interests of the economy.”
