Philip Lowe speaking at meeting of central bank chiefs in US says political turbulence is prompting economic jitters

This article is more than 1 year old

This article is more than 1 year old

With the trade war between the United States and China spiralling, and world leaders gathering in France for the G7 summit, Australia’s central bank governor Philip Lowe has issued a stark warning that there is only limited capacity to protect the global economy from “a period of major political shocks”.

Lowe used a contribution at the closing session of a retreat for central bankers in Jackson Hole, Wyoming, to argue that political shocks, like the trade dispute which imperils global growth, the turbulence created by Brexit, and protests in Hong Kong, were “turning into economic shocks”.

The RBA governor said central banks could not neutralise political instability. Lowe said infrastructure investment and structural reform in economies around the world would have more impact than cutting interest rates, but “with these three levers stuck, the challenge we face is monetary policy is carrying too much of a burden”.

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“Monetary policy cannot deliver medium-term growth,” Lowe said. “We risk just pushing up asset prices”.

Trump’s escalating rhetoric before his departure for the G7 – which included an attack on the US central bank, and a declaration that American companies get out of China – caused a sharp dive on financial markets.

The tirade from the American president followed a signal by China that it would impose $75bn in tariffs on American imports in retaliation to Trump’s declaration in late July that the US would impose 10% tariffs on $300bn worth of Chinese imports.

The Australian prime minister, Scott Morrison, is expected to catch up with Trump in a “pull aside” meeting at the G7, and also have his first sit down meeting with the British prime minister Boris Johnson.

Morrison will travel to Washington next month. Australia has been urging Washington and Beijing to de-escalate the current trade tensions, and Trump will hear similar appeals from other world leaders in Biarritz, including Johnson.

Australia’s trade minister, Simon Birmingham, has noted that the actions the US has taken could contravene World Trade Organisation rules.

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As Morrison headed for the G7, where Australia will be an observer at the gathering and participate in sessions about climate change and the digital economy, the treasurer Josh Frydenberg said bystanders were being harmed in the trade war.

“When you had trade tensions between the two big players, the United States and China, it’s not just the protagonists who are affected, but it’s the bystanders as well”.

“Some of those tensions are on our doorstep,” Frydenberg said. “I’m working and talking to the treasury on a daily basis about the overall impact on the global economy and the impact on us here in Australia, including the trade tensions”.

On Sunday, the foreign minister, Marise Payne, said Australia agreed with some of Trump’s critique of China’s behaviour, including “forced technology transfers and intellectual property theft” but she urged the two countries to step back from the brink.

“Sitting down, trying to determine a path through, is important not just for the United States and China, but indeed for the world,” Payne said.

• Reuters contributed to this report



