Economy: Australia needs productivity-enhancing structural reforms, stronger business incentives and lower interest rates to reach its economic-growth potential and guard against recession as slowing economic growth in China and increasing supplies of raw materials will prevent a meaningful recovery in commodity prices, says Citi. 
Iron ore will average $US50 ($69) a tonne for the next 10 years, and other commodity exports won't recover much, crimping the economic growth outlook after a decade-long resources boom driven by China, Citi analysts warn.
Seven years after the global financial crisis, global economic growth remains below average despite record low interest rates and extensive asset-buying programs from some of the world's largest central banks. Australia's major commodity exports are trading at multi-year lows, and China, the world's biggest consumer of commodities, continues to decelerate.
Australia's largest trading partner recorded economic growth of 6.9 per cent in the year to   September - the slowest pace of growth since the financial crisis - and there's widespread doubt about whether its growth is anywhere near as strong as the official estimate.
"This is a fairly challenging backdrop that Australia faces and it's not just short term," said Citi's chief economist Australia and New Zealand, Paul Brennan.
"It means we are going to have to make our own luck from here, rather than relying on the rest of the world and I think that in turn means we are going to need to see a whole series of policies and business and consumer-focused actions to facilitate that." Speaking at Citi's Investment Conference in Sydney yesterday, Mr Brennan said Australia must "think more creatively" about how it will boost productivity, finance infrastructure spending, and incentivise businesses, potentially via lower corporate tax rates.
In his view it will be difficult for Australia to achieve its potential economic growth rate of about 3 per cent while also meeting the government's fiscal goal of achieving a budget surplus by the end of the decade.
"One of the things we hear regularly from politicians and Reserve Bank officials is that the economy is doing pretty well, all things considered, and that's a fair point, but I would also like to hear more about how we can do better." Mr Brennan noted that the economy is growing below potential by a fair margin, unemployment is above its non-inflationary potential and many people are working shorter hours and being paid a lot less than they would like.
"I suspect that the longer that we continue to grow below potential, we run the risk that inflation will fall below the 2-3 per cent target â€¦ it will be like a lot of countries â€¦ we will be battling disinflation."Mr Brennan argued that real interest rates are higher than in countries with similar levels of spare capacity: "so to us, even though the Reserve Bank has been lowering interest rates, we think there's still room for them to lower interest rates further."