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RBA governor Philip Lowe says a truce in the US-China trade war could see the global economy rebound quickly.Credit:Alex Ellinghausen

But Dr Lowe said,"I think we can do more"in an interview withThe Sydney Morning Herald andThe Age.

The economy this weekwas revealed to be at its weakest in a decade. Amid calls to stimulate growth by stepping up infrastructure investment,Mr Morrison said the government was doing everything it could. That included asking the states to bring projects forward,he said.

Dr Lowe,however,said that there was scope for more new projects as well as more spending on maintaining existing public infrastructure.

"Right at the moment there is limited capacity to do more mega projects in Sydney and Melbourne but there is capacity elsewhere in the country to do significant projects,and also capacity to do a series of smaller projects,"he said in the interview conducted for aprofile published in Saturday'sGood Weekendmagazine.

"Part of infrastructure investment is actually maintaining road,rail,bridges right across the country. It has the other advantage of making sure infrastructure spending is spread across the country and not just centralised in Sydney and Melbourne. There is capacity in some areas."

The resolution of the[trade war] uncertainty is the number one priority at the macro level.
RBA Governor Philip Lowe

The head of Australia's central bank also said that resolving the trade war between the US and China was the"number one priority"for the world economy.

"It's affected the investment climate around the world. Because businesses are very nervous about investing in capital because they don't know what the tariff regime is going to look like,and they also don't know what the tech landscape is going to look like,"Dr Lowe said.

"Is it OK to have Chinese components in your factory or not? When businesses are uncertain,they sit on their hands."

The governor said that the dispute could start to harm employment:"It's having a first-order effect right now. If the uncertainty is not resolved,around the world employment growth slows as well as investment."

On the other hand,an early resolution could lead to a quick turnaround in the world economy:"If uncertainty gets resolved,given that there's been under-investment in capital formation for a while and interest rates are low,the situation could pick up quite quickly. So the resolution of the uncertainty is the number one priority at the macro level."

Independent economist Saul Eslake said that the disagreement between the Reserve Bank and the government was set to continue:"It's barely quarter-time,"he said.

He said that"there is already quite a lot of infrastructure going on,but the national accounts this week show that while infrastructure spending is at a high level,the rate of growth in that spending is diminishing".

He said there was a case for bringing forward state and federal projects planned to be built over the next 10 years.

The Master Builders Association agrees with the Reserve Bank. It said last week that"even though we supposed to be on the cusp of an infrastructure boom,engineering construction activity has not been this weak since the GFC.

"It’s a clear sign that governments are not moving fast enough to advance infrastructure commitments to the construction phase,” the association's economist Shane Garrett said.

The clashing opinions are part of a widening divergence between the Morrison government and the central bank over how to generate growth.

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