Regional Variation in a National Economy

Posted on: Friday, 13 April 2018 at 6:53:25 AM

Article from the Aicc(WA) EY Annual Signature Lunch 2018, hosted on Wednesday 11 April 2018, at EY, Perth, featuring Guest Of Honour: Mr Philip Lowe, Governor Of The Reserve Bank of Australia

In a rare opportunity for Perth, the Governor of the Reserve Bank of Australia, Mr Philip Lowe, addressed the AICC(WA).

Welcoming guests, event host Fiona Drummond, Managing Partner – Western Region and Assurance Partner, EY acknowledged the timeliness of Mr Lowe’s presentation, noting the global trade and geopolitical risks that may impact Australia in the short to medium term.  She also noted the impact of regional economic variations within Australia and reaffirmed EY’s ongoing initiatives to stay in step with market changes.


From L to R - Mr John Cluer, Chief Executive, Australia-Israel Chamber of Commerce (WA), Mr Philip Lowe, Governor, Reserve Bank of Australia, Mr Roger, Davies, Partner, Ashurst, Ms Fiona Drummond, Managing Partner – Western Region and Assurance Partner, EY, Associate Professor Denise Gengatharen, Associate Dean, Commerce, School of Business and Law, Edith Cowan University and Hon Hendy Cowan, AO, Chancellor, Edith Cowan University



Mr John Cluer, AICC(WA) Chief Executive provided a bilateral perspective and comparative analysis on the respective Reserve Bank activities of Australia and Israel. 

Australia’s economy is ranked the 13th largest in the world with GDP of $US1,400 Billion. Israel is ranked 32nd with a GDP of $US340 billion. However the trajectory of the Israeli economy makes for interesting reading with the OECD describing Israel’s “remarkable macroeconomic and fiscal performance”.

There are some similarities between Australia and Israel. The Bank of Israel has maintained an accommodating monetary policy with low benchmark interest rates unchanged for 3 years. Inflation sits within the 1-3% band and analysts warn of a housing bubble.

However, Mr Cluer noted that the comparisons may diverge from there. Israel has an edge through high rates of economic growth, the attraction of global venture capital, and a declining debt burden.   The OECD forecasts Israel will deliver 3.5% growth this year and 3.4% in 2019. Israel’s export receipts in 2017 exceeded $100 billion and the Central Bank has set up an offshore sovereign wealth fund to isolate revenue from the new Israeli resources sector. The Bank of Israel reports foreign exchange reserves of $111 Billion, representing approximately one third of Israel’s GDP.

Ms Fiona Drummond, Managing Partner – Western Region and Assurance Partner, EY


Through introducing the keynote speaker, The Hon Hendy Cowan AO, ECU’s Chancellor, extended ECU’s appreciation for its longstanding collaboration with AICC(WA) and linked the interest and relevance of the ECU School of Business and Law to the presentation topic.     


Mr Philip Lowe, Governor, Reserve Bank of Australia


Mr Lowe provided an insightful and optimistic address, looking at both cyclical and structural changes across Australia.  Looking at variances in both areas, the Governor noted convergence in datasets, and that consistent trends towards less dramatic fluctuations across regions could be measured.  “From the cyclical perspective, the good news is that conditions have improved across most of Australia over the past year. And from a structural perspective, over time the differences in the structure of output and employment across regions are tending to become smaller, rather than larger.”

Using the metrics of employment rates, business investment (non-mining), business confidence, and wage growth, the Governor further explored this theme, concluding that the overall picture for the national economy is one of improvement.  The combination of all factors deliver a picture of gradual improvement, albeit that slow wage growth has been of greater proportional impact through regional fluctuations.  The WA resources boom and its aftermath have had a strong influence on wage fluctuation.  For the first time in a number of years there is less volatility in this area, a position that Mr Lowe described as a “positive trend”.

From the structural perspective Mr Lowe clearly noted that “there is a longer-run trend towards more similarity, rather than more divergence, in the underlying economic structure across the country.”  He discussed volatility in housing prices, migration trends, qualification levels in the workforce, and a longer-term shift from a manufacturing economy to a services economy as influencing factors.  Although there have been regional differences, these continue to narrow over time. 

The Governor was able to conclude with some comments about monetary policy.  He commented that “The Reserve Bank's responsibility is to set monetary policy for Australia as a whole. We seek to do that in a way that keeps the national economy on an even keel, and inflation low and stable. No matter where one lives in Australia, we all benefit from this stability and from being part of a national economy. This is so, even if, at times, in some areas, people might wish for a different level of interest rates from that appropriate for the national economy. In setting that national rate, I can assure you we pay close attention to what is happening right across the country."

Expecting a gradual level of continued growth, Mr Lowe did not advocate the need for a near-term adjustment to monetary policy.  The stability of the combination of all factors led him to remark that Australia’s economy is projected to deliver moderate wage and inflation growth into the future, although inflation had sometimes been frustratingly low.  On the topic of economic recovery he remarked “although a positive story, we still need to do more”.

The full text of Mr Lowe’s speech and presentation graphs is available from this link.   

Through an engaging conversation, Mr Lowe addressed a number of audience questions.  He challenged that policy challenges for the RBA centred around supressed wage growth and its link to inflation, and also the higher ratio of household debt to income, both of which are inhibitors to the effectiveness of monetary policy.  Interest rate cuts do not have the same immediate impact as they once did as they do not always lead to stimulus through greater domestic spending. 

The geopolitical environment and its impact on the RBA was also a topic of interest.  Although apolitical the RBA remains cognisant of the impact of global trade regulation.  Mr Lowe passed general comment about the impact of free and open trade on economic growth. He also spoke about the comparative advantages of global economies, citing Israel’s ability to create economic wealth through “what sits within people’s minds”.


Mr Philip Lowe, Governor, Reserve Bank of Australia, Mr Roger, Davies, Partner, Ashurst and Mr John Cluer, Chief Executive, Australia-Israel Chamber of Commerce (WA)


Mr Roger Davies, Partner, Ashurst presented a vote of thanks, noting with appreciation that the Governor and the RBA board frequently come to Western Australia and do not discount our isolation or issues from consideration when determining monetary policy.

Mr Philip Lowe, Governor, Reserve Bank of Australia and Mr John Cluer, Chief Executive, Australia-Israel Chamber of Commerce (WA)

About Philip Lowe

Philip Lowe is Governor of the Reserve Bank of Australia.

Mr Lowe holds a PhD from the Massachusetts Institute of Technology and a B.Comm (Honours) in Economics/Econometrics from the University of New South Wales. He has authored numerous papers, including on the linkages between monetary policy and financial stability. He commenced as Governor on 18 September 2016.

He is Chair of the Reserve Bank Board and Payments System Board, and Chair of the Council of Financial Regulators. He is a member of the Financial Stability Board. Prior to his current role, he held the positions of Deputy Governor, Assistant Governor (Economic) and Assistant Governor (Financial System). He also spent two years at the Bank for International Settlements working on financial stability issues.

Mr Lowe is Chair of the Financial Markets Foundation for Children and a director of The Anika Foundation.

Mr Lowe is a signatory to The Banking and Finance Oath.




 Ms Fiona Drummond, Managing Partner – Western Region and Assurance Partner, EY, Mr Philip Lowe, Governor, Reserve Bank of Australia and the Hon Hendy Cowan, AO, Chancellor, Edith Cowan University



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