Saturday, February 19, 2005

The Goldilocks Economy

Goldilocks economy (GOHL.dee.lawks i.CON.uh.mee) n. An economy that is not so overheated that it causes inflation, and not so cool that it causes a recession. [Word Spy]

The Sydney Morning Herald reports that Australia's Goldilock years will be over if urgent steps are not taken.

Australia will have to get used to years of stunted growth and higher interest rates as the economy hits the limits of its productive capacity, the Reserve Bank governor, Ian Macfarlane, has warned.

Mr Macfarlane's alert foreshadows the end of Australia's dream run as the so-called "Goldilocks economy" - one that is neither too hot nor too cold, economists say.

In a blunt message to the Federal Government, Mr Macfarlane told a parliamentary committee in Sydney yesterday that sweeping reforms were needed to reinvigorate the economy.

He called for tax and policy measures to boost business investment, increase the supply of skilled workers and improve productivity in an attempt to raise the speed limits of future growth.

Mr Macfarlane's agenda included debate on increasing immigration, reforming welfare and scrapping tax breaks that had diverted a huge proportion of investment away from productive businesses into housing.

"GDP is also starting to slow under the constraints imposed by capacity limitations," he said. "I think we will have to get used to seeing GDP growth rates starting with the numbers 2 or 3 rather than 3 or 4 for a time."

These constraints on capacity were impairing growth and putting upward pressure on wages and prices, Mr Macfarlane said. "We are hearing more reports of businesses finding difficulty in hiring suitable labour and having to pay more for material inputs."

If the government does not follow the suggested changes then the fabled Australian stable economy may go for a toss.


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