Australia Stuck in Low-Growth Trap

Australia's chronically weak productivity growth is expected to continue, with the Reserve Bank of Australia (RBA) downgrading its labour productivity expectation for 2026 from 0.2 per cent growth to a fall of 0.5 per cent.

The RBA held interest rates steady at 4.35 per cent for the second month in a row, citing that the economy had been slowing as expected. Governor Michele Bullock lamented the RBA's inflation objective essentially consigning Australia to feeble economic growth.

'Productivity outcomes have been weak for some time, and continued weakness will constrain the economy's ability to grow without generating high inflation,' she said in her post-meeting press conference.

Australia's trend growth rate is significantly lower than previous decades, with the RBA expecting the economy can't grow above two per cent a year without pushing up inflation. AMP chief economist Shane Oliver said the federal government could have helped the RBA by cutting spending to free up capacity in the economy and doing more to help boost productivity.