‘Structural decline’: CBA warns productivity crisis will crush Aussie wages, living standards
Commonwealth Bank has issued a dire prediction about what lies ahead for Australian workers and the economy in coming years.
Commonwealth Bank has issued another sobering warning to Aussies, predicting the economy’s low growth will lead to lagging wages and living standards.
Australia’s potential growth has trended downward for several decades, wrote the bank’s economist Harry Ottley in a note to investors on Thursday, and the culprit is lower productivity growth.
The report pegged Australia’s potential growth – the rate at which an economy can grow over the long term without causing inflation to rise – at 2.1 per cent.
“Potential growth has been in structural decline due to weaker productivity growth,” Mr Ottley said.
“Looking ahead, it is difficult to see potential GDP growth lifting materially in the near‑term.
“There is a risk potential growth is lower than we estimate given the signal from recent inflation data.”
Low productivity growth is due in large part due to the expansion of the non-market sector, including public servant jobs and NDIS spending.
The mining sector has also experienced falling productivity.
Mr Ottley warned if potential growth remained low, it would lead to “slower growth in economic activity, living standards and real wages”.
AI and an orderly net zero transition could be offsets to low productivity, but this would require “businesses to be agile and adaptive as technology improves, something Australian businesses have historically struggled with”.
“So arguably Australia is likely to see both less, and a delayed increase to productivity stemming from AI.”
For the net zero transition, Mr Ottley said productivity benefits were likely only possible over the medium-to-long term and the current phase of the transition was “challenging”.
“Higher energy costs are a negative for competitiveness, productivity and growth.”
The report came after CBA’s own share price had tumbled 9 per cent this week, after its September quarter trading update on Tuesday presented steady but unspectacular numbers.
The bank is now down almost 18 per cent since an all-time high in June. It had risen 85 per cent in the prior two years.
Most brokers now view CBA as overvalued and hemmed in by limited future earnings growth.
‘New economic era’
Thursday’s missive came after the bank’s chief economist Luke Yeaman had also warned that higher interest rates, market volatility and geopolitical tensions are all on the horizon as trust breaks down between countries.
“We have entered a new economic era, one with rules that are very different to the last,” Mr Yeaman wrote in a dreary note to investors last month.
He maintained the world was in the grip of a “deep structural change, not a temporary Trump phenomenon – as some would like to think”.
The current frictions between the US and China were a case in point.
“China and the US aren’t negotiating a typical trade deal; they are flexing their economic and strategic muscle as part of a contest for long-term supremacy.”
Most investors and business leaders had “cut their teeth” in the last economic era – a period of globalisation stretching from the mid-1980s to the GFC, and characterised by stability, trust between countries, and capital flows across borders.
Now, however, “globalisation has stalled, a massive defence uplift is underway, and there is a rapid (and costly) push to rebuild sovereign manufacturing capability in advanced countries”.
Mr Yeaman described a “multipolar world order,” with the two largest countries in the world in open strategic competition.
“Assumptions that China would continue pursuing economic reform as it became more integrated into the global economy proved naive.
“Instead, China has adopted a more assertive posture – seeking to dominate strategic sectors, using economic coercion to achieve its political aims and openly fostering closer ties with Russia, Iran and North Korea (CRINK).”
That geopolitical shift would be compounded by three other factors, he warned: the race to net zero emissions, the AI boom, and declining populations.
