| I'm Swati Pandey, an economy reporter in Sydney. Today we're looking at the Australian exception in rich world central banking. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren't yet signed up to receive this newsletter, you can do so here. - China's central bank unleashed an unprecedented blitz of policy support.
- Federal Reserve officials left open the door to more big interest-rate cuts.
- Germany's business outlook worsened again, reinforcing recession fears.
The Fed might have been ready to join many of its peers in starting to lower rates last week, but the Reserve Bank of Australia continues to hold out, as it did again on Tuesday. Many economists don't see Governor Michele Bullock presiding over an initial rate cut until next year. "Based on what we know at the moment rates will remain on hold for the time being," she said Tuesday. An underlying reason for this unwelcome kind of exceptionalism is Australia's stubborn labor productivity challenge. The nation has had the worst performance on that score of any comparable developed economy in the post-pandemic period, research from HSBC Holdings shows. One broad gauge of productivity, GDP per hour worked, showed 0.5% year-on-year growth last quarter, one-fifth that of the US pace. That sluggishness contributed to higher unit labor costs, keeping inflation sticky. Economists expect data Wednesday will show consumer prices up 2.7% in August from a year before, near the top of the RBA's target band. "Productivity growth is important because it has a bearing on how quickly demand can run without running into inflation issues, but I can't do anything about it," Bullock said Tuesday. What accounts for the productivity deficit? Arguably, one reason is Australia's avoidance — going back some three decades — of major economic downturns. In the US and other economies, wrenching recessions wiped out less productive companies and saw mass layoffs that, while socioeconomically destructive, also lay the groundwork for productivity gains. Another is tied to a failure of Australia's financial system, much vaunted for its large pension savings pool. Small businesses struggle to get funding, with loans to that sector stagnant since before Covid, RBA data show. Also troubling: Australia's angel and seed-stage funding on a per capita basis is about a third of the US, and roughly half that of the UK, according to the Tech Council of Australia. Research from Cut Through Venture and Folklore Ventures shows funding has slowed significantly since 2021, and declined 54% between 2022 and 2023. Tech entrepreneurs have called for modernizing the country's regulatory system, setting rules-of-the-road for emerging assets like AI and addressing tech talent shortages by improving the immigration system. "Productivity might not grab headlines," Allegra Spender, an independent member of parliament and former businesswoman, wrote in a recent opinion column. "But it is the measure we can't afford to ignore any longer." - Moody's Ratings said the current trajectory for US debt is inconsistent with the top credit score it still has on the country.
- The Bank of Japan will raise rates again if data allow but won't be in a hurry to do so, Governor Kazuo Ueda reiterated.
- The Bank of England chief said UK borrowing costs are unlikely to fall back to ultra-low levels.
- European Central Bank President Christine Lagarde told the Daily Show that she and her Fed counterpart exchange views but don't coordinate.
- The International Monetary Fund is looking forward to working with Sri Lanka's newly elected leftist president, including a review of its bailout.
- Coming up: Hungary may resume monetary easing, Nigeria could halt rate hikes, and early tomorrow, Sweden's Riksbank is likely to cut again.
Given all the potential and risks from artificial general intelligence, a new National Bureau of Economic Research paper has issued a call to economists to apply themselves to thinking about everything from AGI's implications for macroeconomic policy to how to keep it aligned with human values and intentions. "Economists have a crucial role in preparing for the Age of AI," Anton Korinek, a University of Virginia economist and AI expert, wrote in the paper. "We must examine what the potential economic and social implications will be and how to reconcile the rise of artificial intelligence with continued human flourishing."  Source: Anton Korinek, NBER Among other things, "by applying economic principles to the AI alignment problem, we can help develop incentive structures that encourage the development of safe and beneficial AI systems," he wrote. "AI systems will eventually be able to help us develop more accurate and nuanced economic models. This enhanced predictive power may also help policymakers devise more effective and targeted interventions." | 
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