Latest news with #O'Donaghoe
The Australian
29-04-2025
- Business
- The Australian
Election 2025: $250bn GDP forgone on weaker growth
Federal government tax revenues would be $50bn higher each year and Australia's annual GDP more than $250bn larger if Labor had met its assumed productivity rate of 1.2 per cent a year, the Coalition has claimed, promising its own higher target will deliver $275bn higher economic growth than Labor's if elected. Labor adopted a lower long-term productivity growth assumption of 1.2 per cent in its 2022 federal budget, reflecting structurally weaker productivity growth across time. Productivity has been dismal on a trend basis, resulting in the nation's annual GDP being $250bn lower than what it would have been if it had met 1.2 per cent productivity growth. Measured as GDP per hour worked, the 10-year average annualised growth is just 0.2 per cent – the weakest in at least 35 years. The Coalition has promised a new target of 1.5 per cent, which on its estimates would mean about $25bn in annual economic growth over and above the 1.2 per cent growth rate. That also would boost federal government revenue by another $6bn a year. Opposition Treasury spokesman Angus Taylor has promised the 1.5 per cent target, saying he is committed to 'pursuing a rigorous productivity and investment enhancing reform agenda' if elected. 'Productivity fuels our economic potential, yet under the Albanese Labor government it has collapsed,' he said. A spokesman for Jim Chalmers said the government had 'a big agenda to boost productivity but we recognise that it will take more than one term to turn it around'. 'The decade to 2020 under the Coalition was the worst for productivity growth in 60 years,' Dr Chalmers' spokesman said. 'Our productivity agenda includes revitalising national competition policy including our $900m National Productivity Fund, streamlining and strengthening our merger and foreign investment regimes, investing in the NBN and delivering record funding for skills and education.' Most economists, including those at the Reserve Bank, blame the government sector for the weak growth. RBA head of economic analysis Mick Plumb noted in February that the 'level of measured productivity in some parts of the non-market sector is low relative to the aggregate economy'. Some economists such as Deutsche Bank's Phil O'Donaghoe said productivity might suddenly turn around in Australia regardless of who took office. Mr O'Donaghoe said while government sector productivity was very low, it only partly explained the decline in Australia's overall productivity. 'Australia's Covid-era employment protection scheme – JobKeeper – has also played an overlooked and underappreciated role,' Mr O'Donaghoe said. 'To the extent that productivity is lagging because JobKeeper has reshaped Australia's post-Covid labour market, we would expect the pre-Covid relationship between productivity and commodity prices to reassert itself over 2025.' He said JobKeeper meant a large number of workers remained 'employed' during this period but contributed little – that is, output per worker was much weaker. 'As disruptions from Covid continue to fade, we expect the pre-Covid relationship to reassert itself over 2025.' Part of the government sector productivity slide might be attributable to the difficulty in measuring the output of workers in areas such as the National Disability Insurance Agency, Mr O'Donaghoe said. 'Productivity is always easier to measure in a manufacturing economy than it is in an economy (with) a lot of non-market based jobs such as the NDIS.' Economist such as EY chief economist Cherelle Murphy said despite the strong levels of government investment, productivity in the government sector had fallen. 'Non-market labour productivity is down by 0.3 per cent since December 2019, compared to productivity growth of 4 per cent in the private sector,' Ms Murphy said. Politics The nation's leading suicide prevention body has accused Anthony Albanese of breaking a promise to prioritise the soaring rate of Australians taking their own lives. Politics The NT will introduce the nation's toughest bail laws after a teen on release for violent offences – including rape – was charged with murdering an elderly man in Darwin.
The Guardian
08-04-2025
- Business
- The Guardian
Deutsche Bank predicts double RBA rate cut in May as Trump tariff threat looms
Deutsche Bank says the Reserve Bank of Australia will follow the script from previous crises and deliver a double rate cut when it next meets in May, as Donald Trump's threats of even higher tariffs on China added to fears of a looming global trade war. Financial markets and economists were in agreement the RBA would lower the cash rate from 4.1% to 3.85% in five weeks' time, saying the decision is 'locked in' after the US president's 'liberation day' trade on 2 April sent financial markets tumbling late last week. A 50 basis-point RBA rate cut would offer some silver lining to indebted households by lowering the monthly repayments on a $500,000 home loan by $152, assuming a home loan rate of 6% now. If rates were to drop by one percentage point by the end of this year – as more economists now predict – then families with big mortgages will be saving hundreds of dollars a month in lower interest payments. Sign up for the Afternoon Update: Election 2025 email newsletter As investors struggle to divine the next move in what many fear is an escalating trade war, Deutsche Bank's chief economist, Phil O'Donaghoe, said the 'global shock' from the most protectionist US trade policy in more than a century justified a more aggressive move from the RBA. O'Donaghoe said while Australia had escaped the worst of the additional reciprocal tariffs imposed on the European Union and countries such as China and Japan, 'Australia does not fly under the radar in a global risk-off environment of the scale demonstrated by moves in financial markets in the past few days'. He drew parallels with RBA's response during previous crises, including the global financial crisis and, more recently, the Covid-19 pandemic. 'Unless there is a sudden reversal – or significant watering down – of US tariff rates on Australia's key trading partners in Asia, especially China, the consequences for business confidence, consumer confidence and domestic growth justify the RBA making an outsized shift away from its 'restrictive' policy stance,' O'Donaghoe said. 'This is one of the few occasions in history where a global 'shock' outweighs prevailing domestic economic considerations.' O'Donaghoe said he still believed the cash-rate cuts would end at 3.1% – from 4.1% now – although the central bank would get there more quickly, by late this year rather than in early 2026. Sign up to Afternoon Update: Election 2025 Our Australian afternoon update breaks down the key election campaign stories of the day, telling you what's happening and why it matters after newsletter promotion Financial markets have priced in a chance of a 50 basis point rate cut next month, but, like most economists, traders believe a more orthodox 25 basis point cut is more likely. The latest rates prediction comes as share markets settled following days of near-panicked selling on Wall Street and on bourses around the world. The Australian dollar steadied at a little over US60 cents on Tuesday, while the benchmark S&P/ASX 200 share market index bounced 2.3% to 7510 points, to still be more than 5% lower over the past week. The return of uneasy calm was despite Trump threatening an extra 50% lift in duties on Chinese goods on Monday night. NAB chief economist Sally Auld said a rate cut at the May RBA monetary policy board meeting still remained the most likely outcome. Auld, however, said she had expected four cuts to 3.1% by early next year, but that the trade turmoil meant the cash rate would reach that level by late 2025 instead. If the trade war escalated, the RBA may need to deliver deeper cuts into the 'mid to high twos', she said. 'A big piece of this is how China fares in all of this. I do think the Chinese will respond with fiscal and monetary stimulus to put a floor under growth. And our starting point is pretty favourable: we have a low unemployment and inflation, and plenty of scope to ease policy.' Whatever unfolds over coming weeks and months, 'we are not going back to a world of zero tariffs,' Auld said.
