‘Bad news’ for Treasurer Jim Chalmers’ major focus on productivity, economic growth after RBA downgrades outlook

Australian mortgage holders were promised financial relief when the Reserve Bank of Australia cut rates on Tuesday, but the good news was shrouded by the central bank painting a bleak picture of the economy.

Alongside lowering the cash rate to 3.6 per cent, the RBA downgraded its medium-term productivity assumption to just 0.7 per cent year-on-year, down from its previous assumption of one per cent.

It also warned Australia’s economy was incapable of growing faster than two per cent over its forecasts.

This comes as a major blow to Treasurer Jim Chalmers who has focused his sights on the nation’s growth and productivity during the second Albanese government.

HSBC’s chief economist Paul Bloxham, who is also a former RBA economist, said the RBA’s call was a blow for the nation’s economic outlook.

“It is absolutely bad news that productivity is going backwards at the moment,” Mr Bloxham said on Business Now.

“And it’s bad news that it’s going backwards and it’s been so weak that the central bank has been actually having to revise down its own working assumption because it had an unrealistically high assumption.”

He stressed that growth was picking up pace, but that these fresh insights from the RBA hammered in the idea that Australians “shouldn’t expect the economy to grow much faster” than it currently is.

“If the supply side of the economy is going to remain weak, as the RBA is now assuming – potential growth rate for the economy, as they’ve said, is two per cent,” Mr Bloxham said.

Australia’s productivity will take centre stage at Mr Chalmers’ upcoming economic roundtable next week where leaders across policy, business and unions will gather to tackle the lagging economy.

After the RBA handed down its rate cut, the Treasurer was adamant Australia was equipped to tackle the nation’s productivity problem.

“Productivity is the most serious economic challenge we have in our economy when it comes to those persistent structural issues,” Mr Chalmers told reporters.

“Productivity is the main one and that’s why it is a central focus of the reform round table next week.

“That challenge has been long standing. It is also global, as the Reserve Bank points out. 

“But it is substantial and it is the government’s primary focus – not just next week, at the roundtable, but indeed for the course of this parliamentary term.”

RBA governor Michele Bullock warned lower productivity growth could dent quality of life for Australians.

“The way we grow our living standards is through productivity. So that’s the key,” Ms Bullock told reporters after the rate decision.

She also warned real wages would continue to stagnate amid sluggish productivity. 

“Weaker productivity growth in the terms of our forecasts – the implications of that … are already being felt,” Ms Bullock said.

“Real wages are not rising by very much, because the implication of slow productivity growth is that real wages can’t grow as quickly.”