After the Boom

Posted on: Saturday, 5 December 2015 at 10:45:03 PM

 

2 December 2015

The Governor, Reserve Bank of Australia and Chairman of the Reserve Bank Board provided a robust appraisal of Western Australia’s contribution to the overall monetary policy considerations of the Reserve Bank.

Speaking to an exclusive audience hosted by EY Perth, Mr Stevens was introduced by Mr Michael Anghie, Managing Partner and Strategic Growth Leader. Noting that innovation is on everyone’s mind, both government and industry, Mr Angie commented that whether by design or necessity, Western Australian’s post boom economic prosperity is contingent on finding new ways to innovate.

Mr Michael Anghie, Managing Partner, Strategic Growth Oceania and Western Region | Asia Pacific Strategic Growth Leader, EY

Further endorsed by Mr John Cluer, Chief Executive, AICC(WA), the first Israel Investment Summit in Australia, The Bridge, was profiled by Mr Cluer as a first-of-its-kind initiative aimed at stimulus for the new economy, led by technology innovation and development.

 

 From L to R - Mr John Cluer, Chief Executive, Australia-Israel Chamber of Commerce (WA), Mr Adrian Chai, Partner, Ashurst, Mr Graham Laitt, President, Australia-Israel Chamber of Commerce (WA) and an AICC Governor & Managing Director, Milne AgriGroup Pty Ltd, Mr Glenn Stevens, Governor, Reserve Bank of Australia and Chairman of the Reserve Bank Board, Mr Roger Davies, Partner, Ashurst and Mr Michael Anghie, Managing Partner, Strategic Growth Oceania and Western Region | Asia Pacific Strategic Growth Leader, EY

 

Co-Sponsor Mr Adrian Chai, Managing Partner Ashurst introduced Mr Stevens address entitled “Economic conditions and Prospects”, drawing on Western Australia’s unique and critical contribution to the Australian economy. Mr Stevens provided a further subtitle to his address by focussing on our experience “After the Boom”, and the economic considerations that influence the Bank Board’s decision making.

 

Mr Glenn Stevens, Governor, Reserve Bank of Australia and Chairman of the Reserve Bank Board

The Reserve Bank Governor was fresh from chairing the Reserve Bank’s December board meeting which held cash rates steady at 2%. It was the first time in four years that the Reserve Bank had met in Perth and as noted by Governor Stevens, provided a first hand and collective opportunity to understand the current economic position and challenges within the State.

A full transcript of the Governor’s speech is available on this link. Key highlights of the speech were;

  • The boom was effective not only in contributing an economic windfall, but also by providing a level of infrastructure and process reinvestment by the resources sector improving the quality of product and lowering the cost of production. These benefits outlast the boom, which has now been reversed by lower commodity prices and lower global economic growth.
  • Australia’s terms of trade for iron ore, our most prolific export commodity, have dramatically fallen and continue to fall. Historical economic cycles for Australia show that resource ‘booms’ can be very disruptive for the national economy. But that hasn't happened at a national level on this occasion – inflationary pressure was relatively contained on the way up, and the economy has continued to grow on the way down – because the economy adjusted to the shocks.
  • Australia’s exchange rate has depreciated by 35% since the Reserve Bank last met in Perth. Exchange rate and labour market flexibility were important in the context of delivering economic stability during the commodity boom. The Bank forecasts moderate growth, noting that detailed forecasts are in the national and not State context. Business investment in WA is now contracting but rising in southern-eastern States, whereas during the investment boom it was the other way around. Similar patterns are being seen in the housing markets.
  • Employment in WA is still increasing. The unemployment rate in WA has increased, from unsustainably low levels, but only to the national average so far.

The Governor concluded that although the boom may be over, WA is better positioned with an economic legacy as a result of having experienced the boom. New opportunities for growth are linked to trade with Asian markets, the development of new commodities and service based industries. Resources will however continue to feature within the economic prosperity of Western Australia as a core industry.

                Mr Glenn Stevens, Governor, Reserve Bank of Australia and Chairman of the Reserve Bank Board

Through engagement and questions from the floor, Mr Stevens provided insight into the role and processes that sit behind Reserve Bank Board activity. He reiterated the Board’s outlook for continued moderate growth.

Mr Stevens suggested that he could not predict the next boom cycle, just as the extent and magnitude of the previous boom was not fully foreseeable.

From L to R – Mr Roger Davies, Partner, Ashurst and Mr Glenn Stevens, Governor, Reserve Bank of Australia and Chairman of the Reserve Bank Board

Mr Stevens also reiterated his comments in the speech on the Reserve Bank’s policy intent in helping to manage the economy through the mining investment boom by minimising the excesses on the way up in order to avoid the ‘excesses’ on the way down. Noting that interest rates were historically low, he stated that if needed there is still room to further reduce the cash rate. However he also noted the extent of dependence and reliance on monetary policy, globally, to lift countries’ economic growth, signalling that other policies are needed to help achieve this. He cited the G20 collaborative growth targets and the associated measures put forward to achieve those, as an example.

Finally, Mr Stevens affirmed the relevancy of the inflation target as a consistent and good framework to underpin economic stability. In the absence of a better alternative, the model anchors inflationary expectations and guides policy setting.

 

Mr Adrian Chai, Partner, Ashurst

 

Mr Graham Laitt, President, Australia-Israel Chamber of Commerce (WA) and an AICC Governor & Managing Director, Milne AgriGroup Pty Ltd and Mr Glenn Stevens (holding Start Up Nation Book).

In proposing a vote of thanks, AICC President Mr Graham Laitt expressed appreciation to Governor Stevens for a frank and forthright presentation. He announced that a tree had now been planted in Israel in recognition of Mr Stevens presenting at the AICC(WA) in Perth, noting the role of the AICC in accelerating the innovation boom through collaborative trade arrangements with Israel enterprise.

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