New Barrenjoey Capital Partners director Philip Lowe warns of ‘economic stagnation’

Former RBA governor Philip Lowe, a new director of investment bank Barrenjoey, has urged policymakers to tackle tough supply-side reforms across the economy.

Former RBA governor Philip Lowe with Barrenjoey chairman David Gonski and board member Kelly O'Dwyer.

Former Reserve Bank governor Philip Lowe has urged policymakers to tackle tough supply-side reforms across the economy, or confront “economic stagnation” and flatlining living standards.

Dr Lowe told The Australian on Wednesday that the nation’s productivity growth had ground to a halt and supply-side issues were exacerbating the RBA’s task to fight inflationary pressures across the economy.

“Demand isn’t growing that quickly and GDP (gross domestic product) growth is slow, but inflation is not coming down that quickly. Why? Because the supply side is incredibly weak,” he said. “Productivity growth has stopped and maybe we are even going backwards.

“And if we don’t get better at doing stuff then real living standards won’t rise and it means that demand in the economy can’t rise if supply is not rising.”

Dr Lowe’s comments came as he prepared to join the board of investment bank Barrenjoey Capital Partners, led by chairman David Gonski.

The appointment, being announced on Thursday, coincided with Barrenjoey declaring a maiden dividend of $11m and reporting a net profit of $34.7m for the 12 months ended June 30, reversing a loss.

Dr Lowe’s first major role since stepping down from the central bank last year was with philanthropic-linked fund manager Future Generation Australia, where he is now chairman.

The former central banker is adamant that policymakers act now to revive Australia’s economic fortunes.

“The inability to reform, to ­enhance the supply side is leading to economic stagnation,” Dr Lowe said.

“The political process needs to find a way to implement reforms that increase the supply side of the economy, as difficult as that is.

“We’ve got a Productivity Commission that’s drafted endless reports and there are a lot of international reports from the IMF (International Monetary Fund), the OECD (Organisation for Economic Co-operation and Development), with things that we could do but every single one of those things is politically difficult … so very few of them, if any, get done.”

Dr Lowe pointed to supply-side factors being a large contributor to the nation’s housing crisis.

“The issue is we need to build more apartments and houses and planning and zoning is the number one issue there. The taxation system has impact as well,” he said.

“But it’s largely a planning and zoning cost-of-development issue and it’s frustrating we can’t do anything about that.”

Annual headline inflation slipped to 2.7 per cent last month, the Australian Bureau of Statistics reported on Wednesday, down from 3.5 per cent in July. That measure fell within the RBA’s 2 to 3 per cent target band for the first time since October 2021, but was interpreted with caution given declining oil prices and energy rebates to households.

On inflation, Dr Lowe said: “As things stand, there’s still a chance that they (the RBA) can stay on that path and bring inflation back to target within a reasonable time. There’s some probability, a reasonable probability, that we can stay on that path but the world is inherently uncertain and we could still get knocked off it for any number of reasons.”

Dr Lowe’s successor at the RBA, Michele Bullock, has flagged that official rates are unlikely to fall in Australia until next year, despite the Federal Reserve and other central banks having already begun their easing cycles.

“If you are a bit later and a bit slower on the way up (on rates) you’re probably a bit later and a bit slower on the way down, so that makes sense. The countries that have dropped – they are still higher than we are,” Dr Lowe said.

“The future is unpredictable. Making interest rate predictions is difficult, as I know … They’re (the RBA) certainly right to be cautious.

“Everything else isn’t equal. We’ve got this productivity problem in Australia, everyone has it but for some reason it is more acute here.”

Official rates in the US were cut to 4.75 per cent to 5 per cent earlier this month, while Australia’s cash rate sits at 4.35 per cent.

On his appointment at Barrenjoey, Dr Lowe said he was approached by Mr Gonski about the role at a University of NSW function and decided to accept after spending time with the management team. Barrenjoey, established in 2020, is led by Matthew Grounds and Guy Fowler.

“Here you’ve got a business that is adding competition in Australian financial markets and there’s actually a lot of entrepreneurship,” Dr Lowe said.

Other former RBA governors and chief regulators have also been lured onto the boards of financial institutions in Australia. Former RBA governor Glenn Stevens is Macquarie Group’s chair while another former governor, Ian Macfarlane, was on the board of ANZ for almost a decade until late 2016. Former Australian Prudential Regulation Authority chair Wayne Byres is on the ASX’s board.

Dr Lowe said he believed his experience in financial and global markets and running the RBA could benefit Barrenjoey’s board.

“I was responsible for the (RBA’s) risk management framework, for the project management and the financial accounts and I was the accountable authority,” he added.

Dr Lowe said he had conducted due diligence on Barrenjoey’s reputation as a firm as well as assessing the firm’s regulatory track record. “I also satisfied myself there were no regulatory issues that had kind of blown up,” he added.

The appointment comes just over a year after Dr Lowe stepped down from RBA’s helm.

Barrenjoey ranks seventh so far this year in announced mergers and acquisitions with any Australian involvement, up from 11th a year ago, according to London Stock Exchange Group’s league tables. In equity capital markets, the firm is in seventh, down from being in the top position.