In front of a strong and welcoming crowd on the opening day of Diggers & Dealers in Kalgoorlie, the former chief economic adviser to Barack Obama delivered a humorously entertaining keynote address in which he led a ‘worldwide’ tour of the global economy.
Throughout the address, Goolsbee acknowledged that the slowing in growth in most parts of the world had ultimately pulled commodity prices off the boil.
Goolsbee was rather bullish about the state of the US, Asia and Europe in the long term. But he warned of a fair few bumps to come in the next six to 12 months as recoveries in some of the largest economies continued.
Goolsbee, who travelled from Chicago to Kalgoorlie to deliver the address, said US growth was stagnant at about 2% and the historical V-shape recovery was no longer.
With productivity in the US stalling and the jobless rate at about 7.5%, Goolsbee said his home country needed to shift to export-led growth, which would be good for industrial demand and commodities. He admitted this shift would take time, with the next 6-12 months continuing to be tough for a nation staging a slow recovery from the GFC.
Goolsbee dismissed suggestions that a recovery in the housing market could help the country bounce back to higher growth rates
“I find this very hard to believe,” he said.
“It [housing recovery] will not be enough to bring the growth rate in the US up.”
With that in mind, Goolsbee steered the topic to the ongoing ‘will they, wont they’ debate over the US quantitative easing policy tapering its stimulus measures, which continues to dog markets, especially US stocks.
Goolsbee admitted that the effectiveness of each round of quantitative easing had become smaller. But he noted that current economic conditions did not warrant any kind of loosening of monetary policy.
“It’s still a pretty serious and depressing environment in the US,” he said.
Goolsbee did not, however, rule out a possible pull back in equity pumping.
“If they start the tapering in September or December, it feels to me they would do so at a modest level,” he said,
On the state of Asia, particularly China, Goolsbee noted the outstanding growth of the past few decades. He labelled the speed of its economic transition from being mainly low-income to middle-income earners as one of the greatest anti-poverty events in history.
He also confirmed what most know, that China’s growth was slowing as it prepared for the shift to a domestic demand-orientated economy.
Goolsbee said this would be a slow and difficult process that would result in demand for some commodities waning as they moved out of the growth phase.
“As we’ve learnt in the US, transforming the growth drivers of the economy is a slow and difficult process,” he said.
“All the resource based aspects and intensity of Chinese growth will still be there, but will lessen over time as they shift to domestic demand services.”
Goolsbee later labelled the China credit bubble a “serious issue”, with the slowdown in growth not “great” for the Australian resource sector and appetite for higher-cost development projects.
