{"id":283584,"date":"2025-11-14T08:44:10","date_gmt":"2025-11-14T08:44:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/283584\/"},"modified":"2025-11-14T08:44:10","modified_gmt":"2025-11-14T08:44:10","slug":"reserve-bank-forecasts-real-wage-recession","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/283584\/","title":{"rendered":"Reserve Bank forecasts real wage recession"},"content":{"rendered":"

In the second last line of the RBA\u2019s exhaustive forecasts out to December 2027 was their projection for real wage growth in year-on-year terms at 6-month intervals.<\/p>\n

According to an analysis from Greg Jericho<\/a>, the policy director at the Centre for Future Work, what they have projected is effectively two separate recessions for real wages in technical terms.<\/p>\n

One starting in the March quarter of 2026 and lasting for three quarters, and another starting in the March quarter of 2027 and lasting for three quarters.<\/p>\n

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In the first, real wages are expected to contract by a total of 0.97%, followed by a contraction of 0.45% in the second.<\/p>\n

Overall, at the end of the RBA\u2019s forecast period in December 2027, real wages are expected to be just 0.28% higher than the post-pandemic peak recorded in June this year and end up roughly where they were in the December quarter of 2011.<\/p>\n

While real wages were growing prior to the pandemic, their rate of growth in the final years prior to the pandemic was anaemic<\/p>\n

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Between June 2016 and the final data point unimpacted by the pandemic in December 2019, real wages grew by just 0.35% cumulatively over that three-and-a-half-year period.<\/p>\n

This dismal performance is not isolated to real wages; when looking at real household disposable income per capita, which is often referred to by economists and the media as \u201cliving standards\u201d, there is a similar trend of relative stagnation from the conclusion of the mining boom.<\/p>\n

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However, once the figure is deflated by the working age population and not the overall population, it reveals that living standards have not improved above where they were in 2012.<\/p>\n

The reason why this is arguably the more relevant metric is due to the fact that what we have effectively seen in the era of a \u2018Big Australia\u2019, is children getting replaced by fully grown adults, which artificially pushes real household disposable income per capita higher.<\/p>\n

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Meanwhile, productivity continues to nosedive to record lows by some metrics, leaving the rate at which wages can sustainably grow without being inflationary at an uncomfortably low rate.<\/p>\n

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In the words of HSBC Chief Economist Paul Bloxham:<\/p>\n

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\u201cThe economy is already growing at, or even a bit beyond, its speed limit.\u201d<\/p>\n

\u201cThe problem we\u2019ve got is weak productivity, and so just a little lift in growth and once again, we\u2019ve got an inflation challenge.\u201d<\/p>\n

Yet when household spending per capita is viewed through the same aforementioned working-age population lens to adjust for population composition, households are spending less today than they were two and a half years ago.<\/p>\n

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Ultimately, policymakers face some very serious challenges on the road ahead.<\/p>\n

Attempting to balance economic growth, interest rates, inflation, and migration will be perhaps the most difficult task of their professional lives, and the stakes could scarcely be higher.<\/p>\n

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