Behind the RBA’s steady rates: the productivity problem every business faces

artmcgee
Oct 1
2 min read

The Reserve Bank of Australia (RBA) decided to hold interest rates steady yesterday, citing that although inflation is moderating, risks remain, and the board want more confidence from incoming data before easing further.

One of the risks underpinning this decision was the outlook for, and impact of, Australia’s low productivity growth. In August the RBA made a notable change, lowering their assumption for medium term ‘trend’ labour productivity growth from 1% to 0.7%, meaning they expect this slow pace to continue.

Why productivity growth is staying low

Rising labour and materials costs, which make it harder to maintain margins.
Slower uptake of new technology, particularly among smaller businesses.
Skills shortages in key industries.
Compliance and regulatory requirements that add workload without lifting output.

Why this matters for your business

Efficiency leaders make outsized gains

When overall productivity growth is weak, businesses that manage to lift productivity make outsized gains.

The spread between “best practice” and “average” is large. Businesses that can push forward leap ahead in margin, cost structure, speed and customer responsiveness.
In ordinary conditions, incremental improvements give modest gains. But when many competitors lag, a stronger mover gets disproportionate advantage of market share, pricing power, reputation etc.

This is why improving productivity becomes a real point of difference: when everyone else is behind, being ahead matters more than when the field is uniformly improving.

Labour-heavy businesses are vulnerable

If your business model relies heavily on staff hours, the pressure is magnified. Rising wages mean higher costs, but if output per hour doesn’t improve, margins shrink quickly. This is especially challenging in sectors like the care economy, trades, hospitality or retail, where labour is a dominant cost.

Without efficiency gains, it becomes harder to:

Absorb wage increases without passing costs to customers.
Maintain service levels when staff are stretched thin.
Compete with businesses that are using more effective ways of working.

For labour-dependent businesses, even small productivity gains can make the difference between thriving and merely surviving.

Turning challenge into opportunity

National productivity may be stalling, but that’s exactly where savvy businesses can seize an edge. Those who act now to embrace better ways of working can build both the resilience to handle the unexpected and the strength to pull ahead.

Do you want to get a better understanding of what productivity means for your business or what practical steps you can take to improve? Let us know, we’re always here to chat.