(Australian Associated Press)
A long period of slow income growth is affecting consumer confidence and spending, the central bank says.
The Reserve Bank’s final board minutes for 2019 included a stark assessment of stagnant wages growth.
“Households’ expectations about future economic conditions had declined significantly since June,” the minutes read.
“Members noted that the prolonged period of slow income growth had affected both consumer sentiment and growth in household consumption.”
The mid-year economic and fiscal outlook released on Monday revised down the forecast for wage growth to 2.5 per cent for the next two years.
The RBA board said private sector wages growth had “levelled out in recent quarters” and public sector wages growth “slowed in the September quarter”.
“Members noted that weak growth in household income continued to present a downside risk to consumer spending, and that a low appetite for risk could be constraining businesses’ willingness to invest.”
As well, CommSec economist Michael Blythe noted the latest weekly ANZ-Roy Morgan consumer confidence rating fell by 0.9 per cent to 108 points – the lowest pre-Christmas reading since 2008.
Treasurer Josh Frydenberg said the most recent national accounts had shown household disposable income witnessing its biggest jump in a decade.
“Ultimately it’s up to the individuals as to whether they spend or whether they save, that’s a choice for them, but what we will see over time is if they pay down their debts today that will free up more money to spend tomorrow,” Mr Frydenberg told the Seven Network on Tuesday.
Shadow treasurer Jim Chalmers said the RBA minutes represented a powerful warning to the Morrison government that persistent weakness in wages growth remains a major threat to an already weak economy.
“Today’s observations are nothing new to ordinary Australians who already feel that no matter how hard they work they just can’t seem to get ahead,” Dr Chalmers said.
“Scott Morrison and Josh Frydenberg have failed the basic test of coming up with a comprehensive plan to get the economy moving again.”
The Reserve Bank board said it had agreed to “reassess the economic outlook” at its February 4 meeting and provide extra stimulus “if needed”, which economists have interpreted as flagging a further cash rate cut.