Australia's Productivity Woes: RBA Downgrades Forecasts Amid Government Spending Concerns

Reserve Bank Governor Michele Bullock has expressed concern over Australia's weak productivity, warning that it could lead to stagnant living standards and higher inflation. The RBA has downgraded its labour productivity forecasts, predicting a fall of 0.5% for the rest of 2026.

Bullock stated that as long as the economy's productive capacity isn't growing, it cannot grow very fast without running into inflationary pressures. This is because weak productivity makes it harder for the central bank to cut interest rates without risking more inflation and acts as a brake on economic growth.

AMP chief economist Shane Oliver argues that government spending has contributed to the problem, reaching a record 28% of GDP. He also points out that public sector workers are less efficient and produce less output per hours worked than their private sector peers.