Australian position 'enviable'
One of the world's foremost economists has given his backing to Australia's economic management through the financial crisis, saying Australia remains the envy of the advanced world, despite its "luxury problems".
Willem Buiter, a former chief economist for the European Bank for Reconstruction & Development, is in Australia this week on a rare visit.
Professor Buiter - who has also advised the World Bank, International Monetary Fund, and Asian Development Bank - praised Australia's economic managers, saying the country had enough monetary and fiscal "ammunition" to handle another adverse economic shock, unlike other economies.
"[Australia's] growth record since the start of the financial crisis ... has really been the envy of the advanced economic world," said Professor Buiter, who is now the chief economist of global bank Citigroup.
"That is due to the huge lift the country has had from the commodity terms-of-trade shock, and from the investment boom in mining," he said. "But it's also partly due to surprisingly sensible macro-economic management. They've just messed up much less than is the norm in advanced economies."
His comments come as the Reserve Bank prepares to meet on interest rates next week, and as the Rudd government prepares to announce a date for the election.
Futures markets are tipping a 90 per cent chance of a rate cut next week, given few signs of inflationary pressures in the economy.
In a key speech earlier this week, Reserve Bank governor Glenn Stevens warned investment in mining was set for "a big fall" and he was yet to see a pick-up in business and housing investment.
He also said business confidence was "subdued".
Meanwhile, Professor Buiter said Australia's economic output still remained close to "potential", and it was much harder to sell the line here that our central bank needed to keep rates "lower for years", which is what will be required for Europe's economies to decouple from US long-term interest rate increases.
"It's really a reflection of the success of previous policies," Professor Buiter said. "You're not in the soup, you're not in a liquidity trap ... so if your economy were to get another unpleasant hit from China or elsewhere, you actually have monetary ammunition in the arsenal to match it," he said.
And thanks to "extremely cautious fiscal policy", there was also fiscal ammunition in the tank. "This is a very unusual place to be in, to see a headline suggesting that the governor of the central bank is encouraging the cabinet to be less restrictive in fiscal policy is something that I had given up hope of ever seeing," Mr Buiter said.
"Australia's position is not without issues, but [its] problems are luxury problems compared to those in the rest of the advanced economy universe."
Economists have been revising down expectations in recent months, due to weaker growth in emerging markets. This represented a "clear changing of the guard", Professor Buiter said, as developed economies would once again carry the weight of global growth.