Topic: Global Economy

Global Economy Early morning mood at a maritime container loading facility
Photo: Yaorusheng – Getty Images

Spillovers to Australia from the Chinese Economy

Rochelle Guttmann, Kate Hickie, Peter Rickards and Ivan Roberts

China is Australia's largest trading partner. The strong links between the two economies raises the question of how a sizeable slowdown in Chinese activity would affect Australia. Through our research we have attempted to quantify how such a scenario could play out and its implications. We consider the main transmission channels, notably trade and financial market effects, and describe possible scenarios that could lead to a material slowing in China. We apply a stylised shock encapsulating features of these scenarios to a medium-sized macroeconometric model of the Australian economy and analyse how the shock is transmitted through real and financial channels. The potential for the exchange rate and monetary policy to offset some of those effects is also examined.

china, modelling, trade
Global Economy The illumniated skyline of a metropolitan city merges with digital displays showing charts and numbers
Photo: owngarden – Getty Images

China's Local Government Bond Market

Alex Holmes and David Lancaster

China's local government bond market is a key source of financing for local governments, particularly to fund infrastructure investment. The market has grown rapidly in recent years but is still relatively illiquid and has a narrow investor base. It also shows little difference in pricing of credit risk across different bond types and issuers, partly due to the perception that local governments enjoy an implicit guarantee from the central authorities. The Chinese Government has implemented measures to foster the development of these features of the market, bearing in mind risks to financial stability.

china, bonds, financial instruments
Global Economy A woman aboard a plane types on her laptop.
Photo: Lane Oatey – Getty Images

The International Trade in Services

Peter Rickards

Services are becoming increasingly traded globally and technological advances have led to the rise of more modern services such as communications, financial and intellectual property services. While advanced economies continue to account for the bulk of the demand and supply of services traded around the world, the emerging economies' share has been increasing. This article examines the changing global trends and compares them to Australia's experience with services trade, which has been shaped by China's growing demand.

services sector, trade, china
Global Economy
Photo: Nikada – Getty Images

Developments in Emerging South-East Asia

Max Alston, Ivailo Arsov, Matthew Bunny and Peter Rickards

A number of economies in South-East Asia have been making significant progress in their economic development. This article focuses on the largest middle-income economies in South-East Asia: Indonesia, Malaysia, Thailand, the Philippines and Vietnam. We examine the developments in these economies over recent decades, explore their relationship with Australia and the global economy and consider their potential to reach a significantly higher level of income. These economies have benefited from favourable demographics over recent decades although some will face pressures from ageing populations. However, there are ample opportunities to gain from further improvement in infrastructure, education and labour force participation.

emerging markets
Global Economy
Photo: xia yuan – Getty Images

China's Supply-side Structural Reform

John Boulter

Supply side structural reform is a key component of China's economic policy agenda. The motivation for reform is the view that the supply side of China's economy is out of balance with the demand side and requires adjustment. The reform targets the structure of production, to make it more efficient at the macro and firm level. As well as improving efficiency, firms are being pushed to make production more environmentally friendly. Promoting advanced industries and innovation in existing industries are also key features of the policy.

china
Global Economy
Photo: Thomas Ruecker

RMB Internationalisation: Where to Next?

Callan Windsor and David Halperin

China's push to make its own currency – the renminbi (RMB) – available for use by non-residents was a catalyst for important reforms. Since the RMB internationalisation policy began in 2009, not only is the RMB now in greater use internationally, capital flows more freely across China's borders, the exchange rate is more flexible and domestic interest rates are more market determined. In time, the RMB could emerge as a widely used regional currency in Asia.

currency, china, financial markets
Global Economy Shanghai Skyline
Photo: Dong Wenjie – Getty Images

Trends in China's Capital Account

Madeleine McCowage

Chinese policymakers' approach to liberalising capital flows has been gradual and controlled over time, as the authorities have sought to mitigate volatility in the Chinese renminbi (RMB) and private capital flows. Direct investment flows out of China have grown, become more diversified and have increasingly been accounted for by private investors. Banking-related flows have proved more volatile and are correlated with expectations for the RMB.

China, investment
Global Economy Image of a map with a hand in the foreground holding Fijian currency
Photo: DNY59, chameleonseye – Getty Images

Developments in Correspondent Banking in the South Pacific

Lindsay Boulton and Brett Winton

This article examines the withdrawal of global financial institutions from providing correspondent banking services to the South Pacific region and the implications for remittances. Disruptions to the flow of remittances, an important source of income to many low-income island nations, could limit local consumption and adversely affect economic stability. So far, however, remittances to the South Pacific region have continued to increase.

Banking, services sector
Global Economy Mumbai, MH, India
Photo: Puneet Vikram Singh, Nature and Concept photographer – Getty Images

Economic Trends in India

June Ma and Ivan Roberts

The Indian economy has experienced a notable turnaround in recent years. Growth has rebounded, inflation has moderated, and the budget and trade deficits have narrowed. The Indian Government has also initiated policies and reforms aimed at encouraging investment, strengthening productivity and ensuring fiscal sustainability. Stronger growth in domestic demand has led to a recovery in India's imports, including from Australia. The recent volatility in foreign exchange markets and the recovery in oil prices pose upside risks to inflation and the current account deficit. However, India's strong long-term potential for growth, driven by demographics, urbanisation and productivity-enhancing reforms, suggests there is scope for trade between Australia and India to expand further in coming years.

India, trade
Global Economy Young woman wearing blue trousers with an orange suit jacket, in the foreground we can see the back of two people, a man and a woman.
Photo: sturti – Getty Images

Indicators of Labour Market Conditions in Advanced Economies

Alexandra Baker and Meika Ball

While the unemployment rate is the most widely used indicator of labour market slack, there are many other measures. This article reports on what a broad range of indicators say about conditions in the labour markets of advanced economies. We summarise the various indicators using a standard statistical technique. The summary measures show labour markets in most advanced economies are tight, although in some cases not as tight as implied by the unemployment rate. The Australian labour market has spare capacity remaining, consistent with readings from the unemployment rate. The summary measures provide additional information about wage developments for most advanced economies, above and beyond the unemployment rate, but do not fully account for the weak wages growth of recent years.

Employment, wages
Global Economy An angle grinder cuts through a steel pipe causing sparks to fly
Photo: Csaba Toth – Getty Images

Wage Growth in Advanced Economies

Ivailo Arsov and Richard Evans

Nominal wage growth in advanced economies has been sluggish, despite unemployment in a number of places falling to levels consistent with full employment. This article finds that, in most economies, low wage growth does not reflect a weaker relationship with unemployment. Instead, lower productivity growth, the difficulty of cutting wages following the global financial crisis and a decline in labour's bargaining power help explain some of the wage sluggishness. There also appears to be a common, but yet unidentified, factor that has weighed on wages over the past two years.

employment, wages
Global Economy Chinese banknotes cover a table
Photo: Hudiemm – Getty Images

Non-bank Financing in China

Joel Bowman, Mark Hack and Miles Waring

The rise of shadow banking activities over the past decade has provided a range of benefits to the Chinese economy and financial system. Yet, it has also raised considerable financial stability risks, prompting Chinese authorities to announce many changes to the regulatory and supervisory framework. This Bulletin article examines the nature and complexity of shadow banking and highlights the challenges facing the Chinese authorities.

china, shadow banking

The graphs in the Bulletin were generated using Mathematica.

ISSN 1837-7211 (Online)