Warren Hogan was chief economist at Credit Suisse First Boston and he held senior economic positions with Westpac Banking Corporation and NSW Treasury Corporation. He is now ANZ’s chief economist and he sees some positives from the lowering of growth forecasts for the global economy.
He now expects global growth to be about 3.5% over the next two years, down from the previous forecast of 4% and with room for further downgrades. He lists still-sizable debt overhang, financial liberalisation in emerging markets and current account imbalances as potential causes of weakness in the economies around the world.
A large part of the reduction in ANZ‘s growth forecasts stems from China accounting for nearly one fifth of global GDP. For example, a 1% reduction in China’s expected growth rate would directly account for a 0.2% reduction in the global rate and that’s before any trade or investment effects which may flow to other countries.
ANZ’s Hogan thinks a lower level for growth for China and the world is actually a good thing. He said, “If Chinese authorities tried to resist such slowing it could lead to excessive leverage and asset bubbles. This would in turn be a threat to global economic and financial stability.”