Writing in an opinion piece, NAB group CEO and chairman-elect Philip Chronican has suggested that property cannot be the saving grace for Australia’s economy and that rate cuts may lose their significance in an environment of record-low interest rates.
Mr Chronican elaborated: “Interest rate cuts may have been useful for the residential property market. But given rates are already at historic lows, future cuts are unlikely to have any impact. And we can’t restart a cycle of meaningful economic growth through property.
“We need to foster business investment to create growth and improve productivity,” he said.
Earlier this month, the Reserve Bank of Australia (RBA) held the official cash rate at 1 per cent, in line with market expectations, after concluding that “outlook for the global economy remains reasonable, although the risks are tilted to the downside”.
Indeed, GDP growth is at its lowest since the GFC, with the unemployment rate, inflation growth and wages growth little changed in the past year.
The central bank is expected to cut rates further in the coming months, following on from its back-to-back reductions in June and July, with some analysts expecting the cash rate to hit 0.5 per cent by the end of 2019 and potentially further ease rates into 2020, too, given an underperforming labour market and lower spending.
However, Mr Chronican suggested that Australian businesses are “at a critical impasse” as, despite interest rates being at record lows, the private sector is “technically in recession and capital expenditure is down 1 per cent on a year ago”.
He added that despite businesses having “cash in the bank and ambition to grow”, they are being “cautious” and “don’t know if now is the right time to invest”.
As such, the new CEO suggested that there is a need to “foster business investment to create growth and improve productivity” and that “navigating this challenge is a shared responsibility of business and government”.
Writing in an opinion piece for the Australian Financial Review, Mr Chronican continued: “This week’s NAB Monthly Business Survey showed that, in Australia, both confidence and conditions declined in August and remain well below long-run averages. Trading conditions, forward orders and profitability are all lower.
“Australia’s GDP growth is at its weakest since the GFC and only modest growth is expected in the medium term.
“Overall, the risks to business owners can look one-sided – but there are factors we can influence to foster growth. It will take effort on both sides of the Tasman to support increased activity.”
According to Mr Chronican, the following initiatives “would be helpful” to stimulate economic growth:
- a “simpler and more efficient tax system”;
- an investment allowance that would offer business accelerated depreciation for increases in investment (said to be “on the agenda” for both government and the opposition), which would “more directly target where stimulus in needed”;
- long-term infrastructure planning and asset creation (such as transport links to support new housing developments);
- long-term planning and investment in non-physical assets, such as education and training systems;
- reducing “unproductive regulation”; and
- activity that helps build greater confidence.
“The challenge of building confidence, indeed all these challenges, are not for governments alone to solve.
“Business can – and is – taking action. We can boost capital deployment. And we can increase productivity in our own businesses,” he said.
Mr Chronican added that the major bank is “open for business” and is “lending to businesses that want to grow” and said the bank supported broader mechanisms that help customers, including the government’s Australian Business Growth Fund – which he said was “designed to facilitate long-term equity capital investments in small and medium businesses”.
He concluded: “Increasing prosperity in Australia will be a function of productivity growth and investment. NAB is absolutely committed to doing our part.”