For the full picture, download the report: Australian Markets Weekly 9 December 2019

• The Reserve Bank’s persistent overestimation of growth likely reflects not allowing for the decline in potential growth, which the bank estimates has slowed from 3.1% in 2000 to 2.7% in 2010 to 2.4% in 2019.
• Slower potential growth reflects the weakest growth in labour productivity in decades.  Growth in labour productivity has slowed mainly because of weak multifactor productivity – which captures technological progress and structural reforms that can make a worker more efficient – and less “capital deepening” – where increased investment can make a worker more productive.  Multifactor productivity mainly reflects less technological progress worldwide, although a lack of structural reform has also played a role.
• Barring a further surge in the size of the workforce, a recovery in potential growth hinges on a sustained recovery in labour productivity.  That seems unlikely any time soon given it would require a large and sustained increase investment to make workers more productive and/or a burst of technological progress that can be adapted by Australian business.

The week ahead – NAB business survey & RBA speech; NZ budget update; US FOMC; UK election; ECB meeting

• In Australia, the NAB business survey is due Tuesday, along with a speech on the payments system by Governor Lowe.  The Reserve Bank Bulletin on Thursday could provide background to Lowe’s recent speech on QE.  In NZ, Wednesday’s Half-year Economic and Fiscal Update will show what the government means by a “significant” fiscal stimulus.
• In the US, Wednesday’s FOMC is expected to see the Fed remain on hold, pending more news on the trade wars and with the domestic economy still making progress. The Fed will publish updated forecasts, including the dot plot for the Fed Funds rate. Friday’s US retail sales should show solid growth.  In the UK, Thursday’s election is the focus, with increased market odds of an outright Tory win.   This week’s ECB meeting outcome is unlikely to surprise, with markets expecting the central bank to keep policy unchanged. More focus is on new ECB President Lagarde’s policy views at her first post-ECB meeting press conference. In China, aggregate financing figures should show if recent stimulus measures are gaining traction. The CPI & PPI should show continued pork-driven inflation; outside of this inflation remains subdued.

Customers can receive Australian Markets Weekly and other updates directly in their inbox by emailing nab.markets.research@nab.com.au with the name of their NAB relationship manager.