Income growth to halve

The below chart isn’t news to MB readers but the SMH has run it two years late:

There’s a sizable turnout of economists and analysts at the Australian Business Economists’ annual conference in Sydney this morning.

One of the speakers is David Gruen, a senior Treasury official, who talks about forecasts on how the non-mining sectors of the economy could recover.

One of his key points is that the next decade will see the slowest income growth for half a century as the terms of trade falls.

Gruen says in a Q&A session later than while the outlook is less pessimistic than Professor Ross Garnaut’s in his new book Dog Days: Australia after the Boom, living standards growing at half the pace would still be a “substantial shift”.

He says there are grounds for optimism going forward as Australia grapples with a shift away from mining-led growth, but that part of the success is dependent on how looming problems are dealt with.

729-annual-income-growth-gruen-620x349

This is the glass-half-full take on things. If you look at shorter periods over the next decade there will be periods where income falls. Betting on rising asset prices in that environment is very aggressive.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. But Capital Gain will SKYROCKET and like a billion ballons filled with fiat confetti bursting in the sky, wealth will be showered upon us all!!! Happy Days!!!

  2. “Betting on rising asset prices in that environment is very aggressive.”

    Betting on rising asset prices in that environment is nuts.

  3. Betting on rising asset prices in that environment is very aggressive.

    Maybe. But the RBA is happy to push housing inflation and we have an inflation target that is double most of our peers. Without a rate rise and with potential cuts still a possibility it doesn’t seem that aggressive.

    • Sure the RBA can cut rates, it doesn’t mean it will flow through the banks to our mum and dad investors.

      Our low interest rates are cheap because foreign savers are willing to accept a low return for our perceived low risk.

      If our unemployment rises and our ToT deteriorates these foreigners will demand a higher return on their money due to the increased risk which could in turn push up interest rates.

  4. Staff at the federal health department have been told that there jobs will be recategorised as lower levels, and they can then voluntarily be reassigned to a lower level or be made redundant. Basically, public servants are already experiencing falls in income. They won’t be the last.

  5. Gruen is making some pretty courageous assumptions about productivity and the trade balance.

    What about secular stagnation? When will Treasury incorporate that into their models about future Australian living standards?

  6. as house rents move with wages I guess the taxpayer subsidies to the negative gearing baby boomers will have to double despite there being less taxpayers to contribute