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RBA Says Aust Well Placed When Global Growth Resumes

Fuseworks Media
Fuseworks Media

Sydney, May 19 AAP - Reserve Bank of Australia (RBA) governor Glenn Stevens says the nation is well placed to profit from a recovery in global growth, which might get under way by the end of this year.

In a speech on "Australia and Canada - Comparing Notes on Recent Experiences", Mr Stevens also said the start of any recovery was likely to be slow to take off.

"It is too soon to say this is beginning yet, though developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year," he told an Canadian Australian Chamber of Commerce breakfast on Tuesday.

"That said, most observers think that the early part of any new global expansion will be characterised by pretty slow growth."

Mr Stevens said while Australia and Canada could not avoid the global recession, both countries were better placed than others to profit from a resumption in growth.

"There are good grounds to think that both countries should be in a relatively good position and well placed to take part in a renewed international expansion," Mr Stevens said.

A key factor that had helped both nations perform better than many other advanced economies during the current global crisis was the resilience of their domestic banking sectors.

"Notwithstanding the global credit crisis, Canadian and Australian banks continue to be profitable and are well capitalised by private investors - something that many advanced countries cannot claim," he said.

"For the 2008 reporting period, the return on equity for the five largest Australian banks was 17 percent, and it was 14 per cent for Canada's major banks.

"This was lower than in the preceding few years, which had been ones of exceptional profits for banks around the world - and years during which, in retrospect, risk was increasing - but still very solid."

Banks in both nations had performed better due to a more conservative approach to risk, Mr Stevens said.

"Firstly, holdings of the complex securities at the centre of the crisis were modest by international standards," he said.

"Secondly, banks in Australia and Canada had more conservative lending practices in their home markets than their counterparts in the United States and the United Kingdom.

"While sub-prime mortgages accounted for around 13 percent of the US mortgage market in mid-2007, the closest equivalents in Australia and Canada accounted for around one percent and less than five percent of their mortgage markets, respectively."

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