(19 October 2009 – Australia) A senior Reserve Bank official has said that Australia’s long-term economic future is linked to the performance of Asian economies, especially China and India.Philip Lowe, assistant governor, Reserve Bank Australia, told the Citi Australian Investment Conference that Asian growth had saved Australia from a technical recession, and was likely to boost the local economy into the future.
However, the central bank also warned that Australia’s business cycle will be more closely linked than ever before to Asia and the nation must ensure it remains flexible to respond quickly in terms of labour and capital.
Mr Lowe said that while there is still much uncertainty about how the world economy will evolve over coming years, Australia finds itself in a better position than most of the other advanced economies.
This reflects not only Australia’s record of sound macroeconomic management and structural reforms, but also its considerable endowment of natural resources, Mr Lowe added.
Dr Lowe said changes in Australia’s international trade, higher prices for its exports, as well as high levels of investment and population growth could be linked to the Asia growth story.
He highlighted that demand from Asia has had its biggest impact on the Australian economy by dramatically raising the prices received for natural resource exports.
However, Dr Lowe does warn that there are substantial economic problems that Australia may face as it moves back towards an increasing reliance on commodity exports for its national income.
As Australia makes use of our comparative advantage, it also need to manage the risks that can come from increased exposure to movements in commodity prices and the relatively large cyclical fluctuations of some of the Asian economies, Mr Lowe cautioned.
Australia needs to keep the focus on removing impediments to capacity expansion so that the economy can grow without causing inflation. Australia also needs to find ways of housing our rapidly growing population and dealing with the environmental issues that can come with growth, Mr Lowe concluded.