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    Growing pains ahead, warns RBA
    By Josh Gordon
    Economics Correspondent
    December 15, 2004

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    RBA deputy governor Glenn Stevens
    Photo: James Davies
    The economy is running out of puff after 14 years of continual expansion and the Government needs to find new avenues of growth, Australia's second most powerful central banking bureaucrat said last night.

    Reserve Bank deputy governor Glenn Stevens said the Government needed to focus on lifting the economy's productive capacity to ensure continued good growth as the credit-funded housing boom came to an end. Mr Stevens said future prosperity would hinge on efforts to boost innovation, training and investment.

    He warned that, compared with previous current account blow-outs, the recent huge deficit had been heavily used to finance the housing boom - an investment that might ultimately prove unproductive.

    "For that part of the investment undertaken in expectation of commercial returns, some reservations must be recorded," Mr Stevens told the Australian Business Economists conference in Sydney.

    "With assets generously priced, and signs that capital values are in fact declining, there is a good chance many of these investors will find themselves disappointed."

    Earlier in the day, Treasury's head of economics, Martin Parkinson, warned that the US faced an impossible task as it fought an expensive war on terrorism, turned more to foreigners for finance, and the population of the developed world aged.

    Also backing calls for a new wave of reforms to guard the Australian economy against potentially serious future threats, Dr Parkinson warned that twin current account and budget deficits in the US, the end of Australia's housing boom, high oil prices and flagging exports posed threats to Australia just as serious as those of the early 1980s, when inflation hit 12.5 per cent and unemployment soared to 10.4 per cent.

    "While we should acknowledge the broad success of many of the past reforms, we also need to recognise they will not guarantee future economic success," Dr Parkinson said.

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