The Reserve Bank of Australia has flagged the potential for a global financial crisis if China’s economic growth slows down, the latest in a series of warnings to the world’s second-largest economy.
“The Chinese economy has been a huge drag on the global economy for a while,” Reserve Bank governor Mark Carney told a Senate committee on Tuesday.
“[The] growth of China has been so large that it’s become difficult to have the same level of confidence that the international community has of the global system.”
He said a potential economic crisis could hit Australia “right up the middle of the economy”.
Australia’s financial system is now “more fragile than any other major country” in the world, Mr Carney said, and the impact of the Chinese slowdown would have a “catastrophic” impact on Australia’s economy.
In a recent speech, Mr Fraser said the world would have to consider “whether China is a sustainable economic model”.
“If the Chinese economy does not slow down, if China does not go through the process of normalising itself, we will be back where we were in 2009, and I think that’s an awful lot of money,” he said.
Mr Fraser has warned that China’s currency devaluation will be followed by a global crisis.
In a report published in December last year, the Reserve Bank’s deputy governor, Simon Birmingham, said that in a global recession, the global central bank would be the most likely to intervene in the global financial system.
He wrote that central banks “will be called upon to intervene when the economic system is in crisis”.
“In the case of an economic downturn, central banks have been called upon by governments to act to stimulate economic activity and to stimulate the financial system,” he wrote.
China’s economy grew by 3.9 per cent in the second quarter of this year, according to the official Xinhua news agency.
It was the biggest annual growth in a decade.
The Australian dollar has been at a five-month high against the US dollar since October last year.
Earlier this month, the US Federal Reserve’s chief economist, Jeffrey Feltman, said there was “some reason to believe” the global recovery could continue for at least another two to three years.
But Mr Fraser has said that the economy was “not going to slow down”.
“I think that we are very far from being out of the woods, we are still in the woods,” he told ABC radio.
“We’re in a very tough economic environment.”
Topics:economics-and-finance,international-aid-and‑trade,international–aid-organisations,government-and.govt,government,australiaFirst posted November 18, 2018 18:26:23Contact James O’ConnorMore stories from Victoria