Australia’s productivity problem is worsening and the economy is no longer capable of growing much faster than 1.3 per cent a year without generating inflation and forcing the Reserve Bank to raise interest rates, with rising costs helping to push business conditions into negative territory last month for the first time in six years.
HSBC chief economist Paul Bloxham said the 0.2 per cent fall in productivity over the past year meant previous estimates that the economy could expand by just under 2 per cent a year may be too optimistic, with the RBA now unlikely to return inflation to its 2-3 per cent target range without at least one or two more rate rises.
“Our working assumption has been that the weak productivity growth of recent years will continue, but last week’s figures suggest it is getting worse,” Bloxham said, referring to the June quarter national accounts.
Stagnant productivity has emerged as a major political challenge for the Albanese government, fuelling inflationary pressures and trapping the economy in a low-growth cycle that has left voters frustrated by years of flat-lining living standards.
Treasurer Jim Chalmers announced on Tuesday that the government would release the next intergenerational report, which will project how productivity and GDP may evolve over the next 40 years and what that would mean for incomes.
Source: https://www.afr.com/policy/economy/australia-s-sluggish-growth-may-still-be-too-high-to-kill-inflation-20260908-p60vd3