Reserve Bank of Australia governor Michele Bullock has warned that a structural shift in the global trading system could yet destabilise markets, even as Australia’s economy shows resilience at home.
Appearing before the House of Representatives standing committee on economics on Monday, Bullock noted the effective US tariff rate had jumped from 3 per cent to 18 per cent, marking a “step change” in world trade dynamics.
“It’s a marked change, and it’s yet to play out,” she said. “It’s going to play out over the next few years … it’s going to be a big change.”
Bullock cautioned that while global markets were currently taking the shift in stride, complacency could be dangerous.
“The markets seem very sanguine at the moment about all of this. There isn’t a great deal of risk priced into equities. Certainly high credit risk companies don’t seem to reflect … high risk in their borrowings,” she said.
She stressed that while the direct impact of tariffs on Australian exports was limited, the knock-on effects for China and other major trading partners could flow through to Australia’s economy.
“What that means for Australia is not 100 per cent clear … the extent to which [our partners] are impacted by the change in the world trading order … does that impact their growth, and therefore, does that impact us?”
While pointing to external risks, Bullock said the domestic outlook had strengthened, as inflation has continued to moderate, employment remains near record highs, and private demand is driving growth.
“At 2.7 per cent, underlying inflation is not far from the mid-point of the 2–3 per cent target range,” she said.
“Our forecasts suggest that inflation is going to settle around the middle of the band, so I think we’re in a very good position in terms of inflation.”
Bullock credited higher interest rates with anchoring inflation expectations, noting that the surge to 7.8 per cent in 2022 had been fuelled by pandemic-era supply constraints, soaring energy prices from Russia’s invasion of Ukraine and pent-up consumer demand.
On the second part of the RBA’s dual mandate, Bullock said labour market conditions remained “close to full employment”.
“The unemployment rate of 4.2 per cent in August remains low by historical standards and the share of the population with a job is close to a record high – this is good news,” she told the committee.
She added that while labour market tightness had eased slightly, the country had still added 1.1 million jobs since mid-2022.
RBA chief economist Sarah Hunter said the broader economy had entered a “cyclical upturn”, with gross domestic product expanding 1.8 per cent in the year to June.
She pointed to a shift from public spending to private sector-led demand, with households buoyed by rising real wages and the stage three tax cuts.
“Over the last three or four quarters, we’ve generally seen a bit of a pick-up and that reflects a number of factors that are improving for households,” Hunter said.
