RTTNews - Tuesday, Reserve Bank of Australia Governor Glenn Stevens said downturn in Australia may not turn out to be one of the more serious ones of the post-War era, in contrast to the experiences of so many other nations.
... we can much more easily imagine upside risks to the outlook, to balance out the downside ones, than was the case six months ago, he said in an address to the Anika Foundation Luncheon in Sydney. According to Stevens, the real challenge for Australia in the near term is to ensure ready availability and low cost of housing finance.
The pace of global growth and easy availability of credit seen during the period up to 2007 was not the norm and it is unlikely to be seen again any time soon. Regarding other major economies, Stevens holds the view that the path to economic health would still be a difficult one, because the legacy of the crisis will cast a shadow for some time.
Stevens added, The rise in household leverage, the much lower rate of saving out of current income, and the rise in asset values we saw since the mid 1990s, are far more likely to have been features of a one-time adjustment, albeit a fairly drawn-out one, than of a permanent trend. These risks are reasonably contained so far in Australia, but it would be prudent not to push our luck here, he stated.
Further, he said banks should reduce their reliance on the extended guarantees and stand on their own feet before too much longer. Recognizing that it is in their own interests, Stevens noted that banks in the U.S. and Europe are starting down on this path on wholesale issuance. He assessed that this would make sense for Australian banks, which accounted for 10% of global issuance of government-guaranteed bank debt over the last nine months.
Throughout the period of maximum global economic contraction, the flexibility in using macroeconomic policies and other steps such as guarantees for deposit-taking institutions has been used to underpin demand and maintain confidence in the economy. Because of these measures, the economy and the financial system have been traveling rather better than those of most of the peers through the crisis and the initial economic aftermath.
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