Discussion paper prepared for CEDA by Dr John Edwards, Reserve Bank Board member and Lowy Institute Visiting Fellow.

Extract

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After the investment boom

In thinking about an economic policy agenda for the next decade or two, it's useful to begin with a sketch of where we have come from, where we are now, and where we might be going. That should help us to identify the areas where we are likely to encounter problems, and the areas where we might do well. In this paper, note I use an elementary projection of Australia's economic circumstances over the next decade to help suggest some of the major questions we need to think about in sustaining prosperity.

To my mind the two most important facts about where we are now and where we have come from are; our sustained prosperity since 1991; and the current investment boom. Australia has experienced an uninterrupted expansion of GDP for the last two decades, during which nominal wealth has quadrupled, real GDP has doubled, and both GDP per head and employment have increased more than half as much again. More recently, Australia has, over most of the last decade, experienced a sustained upswing in investment, which has taken real gross fixed capital expenditure to 28 per cent of GDP - higher than at any time over at least the last half-century.

What do these two singular experiences imply for the next decade? Can the long unbroken upswing continue for another ten years? When the investment boom slows, as it certainly must, what will it leave behind? To help answer those questions I use a projection to define some of the requirements for continuing the expansion for another decade.

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