RBA boss Glenn Stevens says GFC novices in for a shock

JAMES GLYNN
The Australian
November 25, 2015 9:03AM

RBA governor Glenn Stevens. ‘It will be very new experience for quite a lot of Australians.’ Picture: Aaron Francis

The next major shock to the economy will be amplified ­because a huge proportion of the population has not ­experienced a severe downturn, Reserve Bank governor Glenn Stevens has warned.

Mr Stevens said half the workforce had not seen the ­impact of sharply rising unemployment and many in business would be similarly unprepared.

“There will be economic downturns from time to time,” he told a conference of economists last night.

“If one of those turns out to be a big one, it will be a very new ­experience for quite a lot of ­Australians. Close to half the workforce has never seen really high, ­nationwide unemployment. A lot of people in business have, I suspect, not seen how tough conditions can become when virtually every industry and ­region is contracting. That they have not seen this is a good thing … but if one comes it will be a shock.”

Australia has not had a ­recession in nearly 25 years. The country avoided the worst of the 2008-09 global financial crisis due to a rapid budgetary expansion, massive interest rate cuts, a collapse in the dollar, and China’s decision to spend massively on infrastructure.

Mr Stevens was not forecasting an imminent shock, saying instead that recent data had pointed to improvement in the economy. “A number of data points over recent months suggest that prospects for firmer conditions in the non-mining economy are improving.

“Business surveys indicate that firms report conditions to be, if anything, above their long-term average in some key sectors. Firms seem to have stepped up their hiring. Job vacancies have been increasing, hours worked have been increasing and employment growth, even before the most recent month’s data, have strengthened noticeably over the past year.”

At a question-and-answer session after his speech, Mr ­Stevens debunked suggestions the economy would not be able to offer enough jobs, arguing ­instead that there would not be enough workers to support the ageing population

Australia’s economy has been sluggish in recent years, stung by the end of a decade-long mining investment boom, falling commodity prices and a slowdown in China. The RBA recently forecast below-average growth for the years ahead as weakness in investment continues to put a brake on activity. Still, recent low inflation readings meant the RBA had scope to cut interest rates further if the economy needed support, Mr Stevens said.

Financial markets have been winding back bets on a near-term cut in interest rates in Australia as evidence of a steady, albeit slow, recovery becomes visible in economic data.

Mr Stevens said China, Australia’s biggest trading partner, would grow more slowly in the coming decades, but would still be significant. “It is not very controversial to suggest that China will grow more slowly on average than in the past decade, but it will still be a big deal given its overall size,” he said.

Global interest rates were set to remain low over coming years, he added. The US Federal Res­erve looked set to hike rates next month, but tightening beyond that would be slow.

Comments:
Fred 1 HOUR AGO
Those in for the biggest shock will be those dependent on welfare. Expect cuts when the Government kitty is empty. (It already is, and there is no fire power available to splash cash around again like drunken sailors in 2008).

Maxwell 1 HOUR AGO
Having worked through the recessions of the 1950's, 60's, 70's, 80's and 90's all I can say is that when it hits the younger generations are in for one hell of a shock.

For their sake I hope they do not have to experience that scenario but my head says it will happen some day. We cannot keep putting the future on the credit card forever.

Chris 1 HOUR AGO
25 years ago I joined the Army when everything went pair shaped and I lost my business. "The recession we had to have". I spent 12 years in the Army and paid off my debts within four. The question is do kids these days have the guts to do it? The fitness levels?

Definitely not from what I've seen.

Owen 2 HOURS AGO
Having come from an era of much tougher times economically (try WW2 Australia) and having been raised by grandparents who survived the great depression of the 1930's I am continually surprised at the massive change/improvement in Australians' standard of living and actually amazed at the continuous expression by politicians and much of the general population of the absolute need for large growth in the economy "to improve our standard of living". When on occasion I have expressed the view that in my opinion our standard of living is too high, having improved too quickly over too short a time, the reaction in terms of ridicule has been somewhat similar to the effects of an avalanche. Generations who for the most part have never know real hardship, when faced with economic adversity will have little if anything by way of personal or reported experience upon which to call in order to cope. Although not wishing them any harm, I hope I'm still around to watch - backyard vegetable gardens, a few laying hens, walking in preference to driving, saving (if at all possible) not spending, hand me down clothing.......the list goes on and on! Mr Stevens is probably right to say that such an event is not imminent, but like death, it is not 'if' it will happen but 'when'.

Peter 2 HOURS AGO
25 years of growth, add 20 years to become politically sentient and we have almost two generations who have never seen economic hard times. I'm almost looking forward to the next recession to observe the panic when those who believe in magic pudding economics realise taking to Twitter won't solve the problem.

John 2 HOURS AGO
Half, i would say most. This is the reason why we have beome a left leaning soft society, more worried about refugees, gay marriage and the myth of climate change, rather than the important economic factors which will affrct our future such as the countries debt. Can i add most politicians are in this same situation, never known hard times gone from cushy home to uni to a hack union job or entered a legal practice without any real world experience.

lindsay 3 HOURS AGO
Most employees know their rights, it would be nice if they have a good employer, to perhaps say thanks. Same applies to employers.

Tracy 3 HOURS AGO
So true. But this is also why it is impossible to institute the economic, industrial and welfare reforms that would at least soften the blow.

If we continue down this path were all in for a steep drop.

David 16 HOURS AGO
As long as taking on an employee means taking on a liability this shock is bound to come.

Sanchia 18 HOURS AGO

Don't worry, Mal & Martin will deal competently with what ever economic monsters visit our economy.