Australians may be able to look forward to prosperity in the short term, but foreign debt may continue to weigh them down in 15 years’ time.
Westpac chief economist, Bill Evans, said while Australian’s may have a period of economy prosperity to look forward to, they may still be paying for debt in international banks. His comments were made during a panel discussion at the Australian Economic Forum in Sydney.
“The way the Australian economy used to work was that it didn’t really matter about how you ran a bank. If you were happy with the credit quality of the borrower, the money was lent. Markets were very stable and kind, to Australian institutions in particular.
“The issues that were worrying the bank prior to the GFC are still the big issues that are worrying banks today. It has become a major challenge to Australia. The banks are asking to fund growth and maturity, as well as regulation,” he said.
Evans said China’s increase in domination will help Australia, with the giant relying more heavily on Australian resources, including steel.
“China’s intensity of the use of steel will be peaking in 2025. This gives us encouragement that Australia’s economic story will be increasing. It’s not unreasonable to think China’s steel production per capita will increase. That particular driver will be important to Australia’s growth over the next fifteen years,” he said.
Australia must accommodate for the steel industry if China can call on Australian supply during 2025, he said.
“We think there is a rosy picture out there, but are we doing enough to accommodate that picture? By 2025, we should be allowed to increase our capacity to use steel.
“If we start to think in terms of those sorts of scenarios, we can start to feel we can make some sustainable inroads into stopping that foreign debt.”
Australia has made it through the GFC relatively unscathed, but a reduction in reliance on the international banking sector must take place, he said.
“While the economy has weathered the GFC, its excessive international banking debt will pose a major challenge in the future. The key will be whether we can lower our reliance on global international markets. The best sort of consensus is that maybe this time we can get it right,” Evans said.
Other presentations at the forum included a talk by former World Bank chief economist Joseph Stiglitz and a panel discussion looking at why economists must realise the business benefits of technology.