From Callam Pickering at Dad’s Army:
Unless wages rebound, we could be looking at real consumption growth in the 1.5 to 1.75 per cent range within the next year or so — well short of budget estimates of 3 per cent growth in 2015-16. Hopefully lower oil prices and interest rates will help support spending over the next couple of years.
…A further challenge for households is the ongoing deterioration in the real exchange rate. A lower exchange rate will ultimately improve the competitiveness of Australian businesses and support domestic production but it will take time for those benefits to flow through and support job growth and wages. The effect on household spending could prove more immediate and presents a downside risk for the remainder of the year.
…Weak wage growth is symptomatic of the broader problems facing the Australian economy — issues that were largely ignored in this year’s Federal Budget. The main headwinds — including the lower terms of trade, a rebalancing Chinese economy, unfavourable demographics and the private debt overhang — remain in place and continue to pose a genuine challenge for policymakers.
I’m no loon ponder. I have plenty of time for the role of trade unions and labour’s share of income. The very last place I would like Australia to go is to the current iteration of American capitalism that has hollowed out the middle classes and enriched the 1%. But right now what Australia needs is a massive real exchange rate depreciation. That’s how we can repair competitiveness and get investment going as well as jobs moving.
This task ought to be shared proportionately across the community but of course it isn’t. It’s turned into a political football and the plaything of self-centered media barons. It’s sublimated in underhanded 457 via programs. And hence, quite rightly, nobody want to take their share of the burden of adjustment.
The real wage falls are here to stay and are needed, the more important question is how to mange them so that lower income households are protected and the rich don’t overly benefit.
