New global economic shock likely despite signs of growth in Japan
Updated
Japan has joined a handful of other nations to show an unexpected, if slight, return to growth with 0.9 per cent in the second quarter of this year. Some European countries are also showing positive signs. But one of Australia's most senior economic officials, the secretary of the Australian treasury Ken Henry, has warned of a possible second wave in the global financial and economic crisis.
Presenter: Linda Mottram, Canberra correspondent
Speakers: Yoshimasa Hayashi, Japanese economics minister; Dr Ken Henry, Australian secretary of the treasury
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MOTTRAM: It's still the world's second largest economy but Japan has been mired in its worst recession in decades, as the global financial crisis and recession have sent demand for Japan's cars, electronics, and other goods plunging, while sending unemployment close to a post World War two high of five-point-four per cent. All this as an election approaches. But in the second quarter of this year, Japan's economy staged a minor rebound, fuelling an optimistic forecast from economics minister Yoshimasa Hayashi.
HAYASHI: Conditions are still severe, he says, but Japan's economy is expected to pick up.
MOTTRAM: That Japan does well is key for Australia. The two countries are major trading partners. Japan's ongoing slump, for example, had hit Australia's coal exports to the country. The sources of Japan's growth have been domestic stimulus and China's return to growth. But while the latter may be sustained, the effect of the former will diminish.
So, Yoshimasa Hayashi's optimism could be tested. And the long serving secretary of Australia's treasury, Dr Ken Henry, has a wider note of caution.
HENRY: It's possible there will be a second shock wave. I have no reason to believe it will be anything like the first shock wave in size and intensity, it won't.
MOTTRAM: Speaking at an industry conference in Canberra, Dr Henry described an Australia well positioned to attract future investment, just as a massive new liquefied natural gas project was approved for Western Australia despite strong environmental concerns. And Dr Henry says Australia's economic future is linked to two of the biggest emerging economic powers.
HENRY: China and India are only in the early stages of catching up with the living standards of the developed world. This process could have a very long way to run yet. That catch up presents substantial opportunities for our economy.
MOTTRAM: To get a sense, for example, of China's importance to Australia, Dr Henry pointed to the proportion of Australia's export income attributable to China. It rose to almost 15 per cent in 2008, from less than five per cent in under a decade. And even with the impact of the downturn, Chinese demand he said would play a key role in shaping Australia's economic prospects for some time to come.
But he said there was a general consensus around the world that industrialised countries would as a whole find it more expensive to finance current account deficits, while businesses would face a higher cost of capital. And that would mean, Dr Henry said, that the next growth phase might not be as favourable to the industrialised world.
HENRY: It's quite probable that future capital flows will indeed be better balanced, and I use that term deliberately, better balanced, as between the developed and the developing world.
MOTTRAM: So, possibly slower growth for the advanced economies, but Dr Henry predicted the possibility of somewhat faster growth for the developing world.
