Reserve Bank of Australia Governor Michele Bullock has expressed caution over the economic impact of artificial intelligence (AI), suggesting the technology may represent a speculative bubble rather than a driver of productivity gains. Speaking at a Committee for Economic Development of Australia event in Sydney, Bullock indicated that despite widespread investment and adoption, AI has yet to show clear signs of improving economic efficiency.
“All central banks are a little bit worried about that,” she said, referring to the volatility in technology sector valuations. Bullock noted differing views on the matter: “Some people think it’s a bubble, some people don’t. I don’t have a particular view one way or the other, but it’s a risk that I think we’re watching.”
Contrary to government optimism, Bullock said that rapid AI integration has, so far, contributed to inflationary pressures through increased investment in data centres, without the expected productivity benefits. Citing research from South Korea’s central bank, she noted that workers using AI tools tended to reduce their working hours by about 1.5 hours per week while maintaining output, indicating no immediate productivity improvement. Bullock said productivity gains might emerge only after businesses redesign processes to fully leverage the technology.
The Albanese government’s recent intergenerational report projects a substantial long-term economic boost from AI, forecasting that inflation-adjusted economic activity per capita could rise from A$99,200 today to A$157,300 by 2066. Treasurer Jim Chalmers described AI as “the most transformative thing that will happen in our lifetime.” However, Bullock acknowledged skepticism among economists about the report’s assumption of a 1.2% annual productivity growth, reminding that if growth only reached 0.8%, the long-term economic gain would be significantly lower.
On other economic fronts, Bullock addressed Australia’s housing market, which continues to experience a marked downturn amid higher interest rates and recent government reforms limiting property investor tax incentives. Over the past three months, house prices have declined by 3.1%, accompanied by a sharp drop in home loan approvals, particularly among investors. “They’ve dropped for everyone but they’ve really dropped a long way for investors, so it has changed the dynamic for investors, whether it’s worth investing in housing or not,” Bullock said.
While the broader housing market correction remains moderate relative to historical downturns, the governor described affordability as a serious issue prior to the recent decline. Bullock also highlighted immigration’s role in economic growth, stating that new arrivals contributed substantially to growth last year without adding to inflation, except in the strained housing sector where supply struggles to keep pace with demand.
The government has defended its strategy to moderate immigration levels, with Home Affairs Minister Tony Burke warning that more severe cuts could damage the economy. One Nation has called for reducing net migration by over 750,000 over three years, a proposal that contrasts with Labor’s more measured adjustments.
With the Reserve Bank expected to announce its next policy decision next week, markets currently price in more than a 90% chance of another interest rate hike, potentially raising the cash rate to 4.6%, a level not seen in 14 years. Bullock declined to provide a direct preview of the decision, underscoring the bank’s ongoing assessment of economic conditions amid uncertain global and domestic developments.