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The RBA says we are now headed for a global economic downturn — but Australia's tech backwardness could spare it from the worst

Aleks Vickovich
  • Reserve Bank of Australia Deputy Governor Guy Debelle has warned the global economy faces the "risk of a self-fulfilling downturn" due to business anxiety over the US-China trade war.
  • Australia, however, could avoid the worst of the downturn because it isn't very involved in the global tech supply chain, which is where the trade war has been hottest. Government spending in China will also help.
  • Debelle's warning follows major losses on Wall Street on Wednesday, due to heightened fears about a recession in the US. The ASX is also getting battered on Thursday.

US investors — who saw their shareholder value decline by 3% on Wednesday in a major Wall Street wipeout — are unlikely to be comforted by the speech given by a Reserve Bank of Australia official on Thursday morning.

Speaking at an event in Sydney, RBA Deputy Governor Guy Debelle sounded the alarm on the rising risk of a global downturn, just hours after fresh bond market data sparked fears of a US recession and a major sell-off of stocks on Wall Street.

Debelle said the ongoing US-China trade war — and specifically, the related "technology dispute" such as the US government's decision to ban Chinese telco Huawei — is leading to uncertainty in global business, meaning business owners are hesitating to invest or launch new projects.

"The uncertainty as to how the dispute will play out on both the trade and technology fronts means businesses are waiting to see how the uncertainty resolves rather than invest," Debelle said.

"It is too risky to commit to a multi-year project or buy a large piece of plant if the economics of the decision can get completely undermined by a policy decision.

"The longer businesses hold off, the weaker demand will be, which will further confirm the decision to wait. That runs the risk of a self-fulfilling downturn."

But while that global downturn is likely if business confidence doesn't return, the impact on Australia might not be all that gloomy.

That's because the relatively lowly role played by the technology sector in Australia's economy and stockmarket — often seen as a bad thing, as we become over-reliant on old school markets like fossil fuels — actually keeps us protected from this global tech stoush.

"Australia is not very involved in the global supply chain, particularly for technology," Debelle said.

"We consume the end product but we don't provide much of the inputs along the way. We export resources not microchips."

Decisions by Chinese politicians to increase "fiscal stimulus" — i.e. government assistance aimed at helping consumers and businesses spend — will also be helpful to Australia, since it is keeping demand for Aussie coal and iron ore from Chinese companies steady, Debelle said.

The conclusion?

Non-renewable resources look set to save Australia once again and being majorly behind in the global tech economy is suddenly a good thing.

Doesn't sound like much of a long-term plan.