Comments on Current Australian Policy - CEDA · 2016. 7. 22. · USDA EIA CEPII GS2011 OECD ENV -L...
Transcript of Comments on Current Australian Policy - CEDA · 2016. 7. 22. · USDA EIA CEPII GS2011 OECD ENV -L...
Comments on Current Australian Policy
Warwick J. McKibbin Chair in Public Policy
Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, ANU
Prepared for CEDA meeting, Melbourne 18 July 2013
Overview
• Projecting the future is highly uncertain
• What shocks does Australia face?
– It is not all about China commodity demand
– It is not all about macroeconomic policy
• What should be the policy response?
3
Projections of China’s energy consumption
McKibbin, W., Morris, A. and P. Wilcoxen (2009) “Expecting the Unexpected: Macroeconomic Volatility and Climate Policy”, in J Aldy and R. Stavins (eds) Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World
Long term Projections of the World Economy
– A Review
Alison Stegman
Warwick McKibbin CAMA Working Paper 14/2013
March 2013
http://cama.crawford.anu.edu.au/pdf/working-papers/2013/142013.pdf
Projections Reference
SRES-MESSAGE IPCC (2000)
USDA U.S. Department of Agriculture Economic Research Service projection, updated in 2011.
EIA U.S. Energy Information Administration, International Energy Outlook 2011, released in September 2011, Table A3, A4, A11.
CEPII Fouré, J. Bénassy-Quéré, A. and Fontagné, L. (2010)
GS2011
GS2011: Wilson, D., Trivedi, K., Carlson, S. and Ursúa, J. (2011)
GS2003: Wilson, D. and Purushothaman, R. (2003)
OECD ENV-L Chateau, J., C. Rebolledo and R. Dellink (2011),
PWC*
PWC2006: Hawksworth, J. (2006)
PWC2008: PricewaterhouseCoopers (PWC) (2008)
PWC2011: Hawksworth, J. and Tiwari, A. (2011)
K2008 Klinov, V.G. (2008)
DM2010 Duval, R. and de la Maisonneuve, C. (2010)
JCER Long term forecast team, Economic Research Department, Japan Center for Economic Research (2007)
G-CUBED McKibbin W. Morris, A. And Wilcoxen, P (2011)
Table A1 Projection summary
100
120
140
160
180
200
220
240
2010 2015 2020 2025 2030 2035 2040 2045 2050
GD
P p
er c
ap
ita
(2
01
0=
10
0)
United States
100
300
500
700
900
1100
1300
1500
2010 2015 2020 2025 2030 2035 2040 2045 2050
GD
P p
er
cap
ita
(2
01
0=
10
0)
China
USDA EIA CEPII GS2011 OECD ENV-L PWC K2008 DM2010 JCER GCubed
Figure 1: Survey Projections of Real GDP per Capita Growth for the US and China
0
10
20
30
40
50
60
70
80
90
100
Canada Japan South Korea Australia
% o
f U
S
Relative size of advanced economies in 2050
0
10
20
30
40
50
60
70
80
90
100
China Russia Brazil India
% o
f U
S
Relative size of BRICs in 2050
0
10
20
30
40
50
60
70
80
90
100
Indonesia Mexico South Africa
% o
f US
Relative size of other developing economies in 2050
Relative size in 2010 CEPII GS2011 OECD ENV-L PWC K2008 DM2010 JCER GCubed
• The future is highly uncertain
• Demand for inputs in China will most likely continue to rise but at a slower rate
• The problem for Australia is not the end of the China boom – it is that the income boost masked other problems
Shocks
• Relative price shocks from global structural change
• Productivity decline
• Foreign trade and terms of trade
– Chinese demand shift
– Global Commodity supply shift
• Portfolio shift into $A assets
Source: McKibbin W. and A. Cagliarini (2009) “Relative Price Shocks and Macroeconomic Adjustment” in Fry, R., Jones C. and C. Kent (eds) Inflation in a Era of Relative Price Shocks, RBA
• Policy response needs to take all thes factors into account
• Cutting interest rates to bring down the exchange rate is not a good idea if rates are already low
– It leads to a misallocation of capital domestically
Policies
• Focus on reforms to raise productivity in particular by adjusting to relative price shocks
• Focus on real exchange rate depreciation through cutting input
costs – Labor (direct and indirect) – Regulation (level and volatility) – Energy costs (level and volatility)
• Focus on demand expansion by massive infrastructure build
coordinated by a Productivity Commission like independent agency funded off the back of the portfolio shift
• Focus on getting climate change policy right