We’re almost 10 years on from the GFC and some are still wondering whether the global economy has been able to shake the malaise. With global growth off the pace and inflation at around record lows, the possibility of a prolonged low interest rate environment exists.
A further concern for governments and workers which much has been talked about is the fact that real wage growth over recent times has been close to non-existent. This problem is not unique to particular country or region (including China), while closer to home the RBA highlighted this as an issue. In its most recent quarterly statement on monetary policy, the RBA said that low wages growth was complicating the return to a normalised level of inflation of between 2% and 3%.
At a recent forum, Reserve Bank governor Philip Lowe pointed to record-low wage growth as a major economic threat. “When any one of us feel like there’s more competition you are less inclined to put your price up. Firms act like that and workers act like that,” stated Dr Lowe. “We value employment security in an uncertain world and so we’re less inclined to put our price up.”
Wage growth around the world has decelerated since 2012, falling from 2.5% to 1.7% in 2015, its lowest level in four years. If China, where wage growth was faster than elsewhere, is not included, growth in global wages dropped from 1.6% to 0.9%, according to the International Labour Organization Global Wage Report 2016/17.
Average real wage index for developed G20 countries, 2006–15
According to Dr Kevin Kidney, an Investment Manager for Edinburgh-based global fixed income manager Cameron Hume, the two key central issues at play are the lack of inflation and real wages growth.
“Central banks around the world have been very successful in managing down inflation expectations over a long period and delivering a low inflationary environment. Even the economic powerhouses of the U.S. and China have not been able to produce any meaningful levels of inflation despite extraordinary stimulus measures in this cycle”