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The macro settings: What IFSA members need to know

The macro settings: What IFSA members need to know. Mike Callaghan Executive Director The Treasury 3 August 2006. Macro settings and the implications for IFSA members. Macroeconomic growth → rates of return Macroeconomic risks → volatility Competition → efficiency in resource use

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The macro settings: What IFSA members need to know

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  1. The macro settings: What IFSA members need to know Mike CallaghanExecutive DirectorThe Treasury 3 August 2006

  2. Macro settings and the implications for IFSA members • Macroeconomic growth → rates of return • Macroeconomic risks → volatility • Competition → efficiency in resource use • Complexity → deadweight costs, lower returns • The challenge of sustaining high growth rates 1

  3. Timeframe • Policy: • Past focus on shorter term issues • Shift to medium-term framework – 5 years • IGR – 40 year time frame • Funds management industry • Shorter-term and very long-term timeframes 2

  4. Australia’s real GDP per capita 3 Source: ABS cat. no. 5206.0

  5. Per capita growth ratesInternational comparisons 4 Source: Groningen Growth and Development Centre and The Conference Board

  6. Executive Board of the IMF “Executive Directors commended the authorities for the sustained strength of Australia’s economic performance, which they attributed to an exemplary setting of economic policies and institutions, supported by broad consensus on many issues.” Source: IMF, Public Information Notice, Washington D.C., 29 August 2005. 5

  7. Macroeconomic volatility 6

  8. 90 Day Bank Bill Rate 7 Source: RBA Bulletin, F01 Interest Rates and Yields – Money Market

  9. The drivers of GDP per capita 8 Average annual growth rate, 1990-2000. Source: OECD

  10. GDP per capita growth rate Percentage contribution Percentage contribution 4 4 4 4 Population Participation Productivity 3 3 3 3 21/4 2 11/2 13/4 2 2 2 2 1/2 1 1 1 1 1/8 1/8 0 0 0 0 0 0 -1/8 -1/4 -3/8 -1 -1 -1 -1 Share of Share of Participation Participation Unemployment Unemployment Average hrs Average hrs Labour Labour Real GDP per capita Real GDP per capita population 15+ population 15+ rate rate rate rate worked worked productivity productivity last 40 years next 40 years 9

  11. Sustaining growth and prosperity • For Australia to sustain the high level of growth in real incomes and living standards we must: • Increase labour force participation; and • Sustain our productivity growth 10

  12. Participation rates - 2005 11 Source: OECD.Stat database

  13. Workforce participation by country - 2005 12 Source: OECD.Stat database

  14. Labour productivity growth 13 Source: Productivity Commission, 2001

  15. Net Lending 14 Source: ABS, Cat. No 5232.0, 5206.0 and Treasury estimates

  16. Conclusions • The challenge is to sustain strong growth • It requires: • Continuing sound macro policies • Lifting participation • Maintaining productivity growth • Reducing complexity 15

  17. The macro settings: What IFSA members need to know Mike CallaghanExecutive DirectorThe Treasury 3 August 2006

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