The Reserve Bank governor Philip Lowe says the Australian economy is heading towards its first real growth phase since the mining boom.
Dr Lowe was speaking at a conference in Perth and said while the mining investment downturn was almost over, the economy was still facing the challenges of slow wage growth, rising household debt and impending interest rate increases.
“If we are to take advantage of the opportunities that are offered by technology and growth in Asia, we need a flexible workforce with strong skills in the areas of problem solving, critical thinking and communication,” he said.
“Investment in human capital will be one of the keys to success.”
Dr Lowe said investment in non-human capital had importantly turned the corner.
“For a number of years, animal spirits had been missing, with many firms preferring to put off making decisions about capital spending,” he said.
“It appears that some of this reluctance to invest is now passing.”
On the employment front, the growth in full-time jobs has not yet meant wages are rising.
“Over the past four years, the increase in average hourly earnings has been the slowest since the mid-1960s,” said Dr Lowe.
“This is partly a consequence of the unwinding of the mining boom but there are structural factors as well.”
“The slow growth in wages is putting a strain on household budgets and contributing to low rates of inflation.”
The RBA will be keeping a close eye on the rising household debt levels and their sensitivity to any possible rises in interest rates.
“Australians are coping well with the higher level of debt, but as debt levels have increased relative to our incomes so too have the medium-term risks,” Dr Lowe said.
“Having increased their borrowing, households are less inclined to let consumption growth run ahead of growth in incomes for too long.”
“Higher levels of debt also mean that household spending could be quite sensitive to increases in interest rates, something the Reserve Bank will be paying close attention to.”