Australia needs to lift its productivity otherwise we may be about to experience the worst decade of national income growth in almost 50 years. Potential growth has fallen to 2.5% from 3.25%. NAB Group economists James Glenn and Riki Polygenis revealed this and say it is “below recent estimates from the Treasury and the RBA” of 2.75%. They said, “if nothing fills the gap, Australia may experience its worst decade of national income growth (and potentially a deterioration in living standards) in nearly half a century. This lower rate could negatively affect monetary policy and budget forecasts and balances.

“Productivity has slowed globally (pointing to complex structural factors) and without an unexpected technological advancement or significant progress on the reform front, raising productivity growth will be challenging” said Glenn and Polygenis.

There is also the “output gap” to consider which is the difference between current and potential growth. Central banks try to keep this gap as close to zero as possible to have the economy growing as close its potential as possible. A smaller gap means monetary policy – RBA rates – should be tighter for any given level of economic growth.