RBA tips pick-up as early as this year

RBA governor Glenn Stevens

SYDNEY - 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", 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 a Canadian Australian Chamber of Commerce breakfast yesterday.

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

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," 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 per cent, 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, 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 per cent of the US mortgage market in mid-2007, the closest equivalents in Australia and Canada accounted for around 1 per cent and less than 5 per cent of their mortgage markets, respectively."

Stevens said the performance of banking systems in Australia and Canada meant the two nations could contribute strongly to discussions about financial regulation and structure. "I think we could hope to bring a sense of emotional detachment, balance and perspective to the international discussions on regulatory reform, which can be quite heated at times."

Meanwhile, Australia's trade ties in Asia, and in particular China, meant that the volumes of Australian exports had not weakened by as much as many other economies, Stevens said.

Commodity prices had slumped since the middle of 2008, with Australian companies taking a hit to earnings.

But those companies, along with the nation, were still better off.

"Australian resource producers have accepted lower prices for the year ahead, and this is likely to contribute to a decline in the terms of trade by the end of 2009 of about 25 per cent from the peak," he said.

"Yet even with that, at this stage Australia's terms of trade over the coming year look like they will still be around 40 per cent above the two-decade average up to 2000."

- AAP