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Australian executives are saying the nation needs to face the productivity music. (Source: AAP\/Getty) <\/p>\n Australian executives are saying the nation needs to face the productivity music. (Source: AAP\/Getty) <\/p>\n
Australia risks heading into recession<\/a> if policy makers don’t face reality and find a way to help boost productivity. And the spectre of stagnating living standards<\/a> and an inability to address the productivity issue has bank bosses warning we may have reached “peak Australia”.<\/p>\n If the current malaise continues, such a recession will put “good” businesses and households at risk. That’s the prognosis from outspoken economist Warren Hogan as the Reserve Bank of Australia (RBA) patiently embarks on what looks like another rate hiking cycle<\/a> and the federal government flirts with tax reform ahead of the budget<\/a>.<\/p>\n “Productivity is the key but no one in our economic policymaking circles is prepared to make the tough decisions to get productivity going,” Hogan warned.<\/p>\n “And the longer we remain on this pathway the less flexibility we have in our policy response.”<\/p>\n RELATED<\/p>\n “The worst outcome is to get to a point where we have no flexibility with policy \u2013 the only way out is a substantial tightening of policy that puts the economy into recession. A recession that puts at risk good businesses and many households,” he said.<\/p>\n It comes off the back of comments made by NAB chief executive Andrew Irvine at an event with business leaders and media this week, where he warned Australia’s best days of growth may be behind it.<\/p>\n “The fact is, without productivity, Australia simply can\u2019t grow any faster than it is today. So how we\u2019re living now in 2026 is, frankly, as good as it gets unless we lift productivity,” he said. If not, “this is peak Australia.”<\/p>\n He’s not alone.<\/p>\n Wesfarmers chief executive Rob Scott, who helms the company that own retailers like Bunnings, Kmart, Priceline and Officeworks<\/a>, said Australia is now at a “tipping point” as inflation tracks above wage growth.<\/p>\n “Unless we can address the productivity issue and unleash the entrepreneurial spirit of Australian businesses, we will see living standards decline further,” he told The Australian Financial Review.<\/p>\n New data on the labour force released on Thursday showing unemployment held steady<\/a> at 4.1 per cent for the first month of 2026 is expected to add pressure on the RBA<\/a> to lift rates.<\/p>\n The yield on three year Australian government bonds has moved higher, rising above 4.3 per cent \u2013 a level higher than where it was when the offical cash rate was 4.35 per cent, Hogan noted in a lengthy diatribe on social media on Friday.<\/p>\n Story Continues <\/p>\n He said the situation shows “our monetary policy settings are not right”.<\/p>\n Speaking to Yahoo Finance prior to this month’s RBA rate hike, the EQ Economics managing director called for at least three or four rate hikes to quell inflation<\/a>.<\/p>\n “If the RBA starts being sensitive to people with mortgages, then we\u2019re in trouble,” Hogan said.<\/p>\n “We’re going to get our economy in a situation where there’ll be a financial crisis similar to the early 1990s.”<\/p>\n Productivity growth can be understood as our economic efficiency and is a primary driver of living standards as it allows for higher wages, lower prices, greater consumption and ultimately more leisure time.<\/p>\n RBA Michele Bullock has repeatedly said the lack of productivity growth is a major factor in the constraints the economy is currently facing, which led to the recent surprise in inflationary pressures.<\/p>\n Currently Australia’s economy is only growing at just above 2 per cent, compared to the long-run average of about 3.3 per cent. And that’s at a time when population growth has been allowed to rise through high levels of immigration.<\/p>\n As for productivity, it has been on a slow decline over the past two decades. According to the ABS, labour productivity growth has fallen from 1.8 per cent in 2003-04 to 0.8 per cent in 2023-24.<\/p>\n The government held a three day ’round table’ on productivity and economic reform in August, but action on tax reform and other measures to encourage investment don’t appear overly imminent.<\/p>\n In the following months, a Deloitte Access Economics report<\/a> noted Australian living standards remain well below pre-pandemic levels and are likely to remain that way for the better part of a decade, as a lack of reform fails to lift the nation’s anaemic productivity growth.<\/p>\n It said the government’s economic roundtable delivered “no shortage of ideas”, but warned waiting until 2028 to act on tax or investment reforms aimed at boosting productivity would be too late.<\/p>\n “The health and wealth of young people in Australia relative to their forebears is a significant and worsening issue,” report co-author Stephen Smith said.<\/p>\n Get the latest Yahoo Finance news – follow us on Facebook<\/a>, LinkedIn<\/a> and Instagram<\/a>.<\/p>\n Economist Warren Hogan believes rates could go higher than the recent hiking cycle. (Source: Newswire) <\/p>\n
Economist says reforms are needed to address falling labour productivity growth. (Source: ABS) <\/p>\n