Drags on economy remain

There are three factors that contribute to the slow growth in the Australian share market, according to BT Financial Group’s chief economist Chris Caton.

Speaking at the 2010 Association of Financial Advisers National Conference on the Gold Coast, Caton said the Australian share market is below what it was 12 months ago, adding that investors were afraid of three possibilities: an impact on the Australian economy from the Greek debt crisis, a slowdown in China, and a double-dip recession.

Caton said all three possibilities were overstated, adding the double-dip recession was very unlikely to happen, although not all problems had been solved since the global financial crisis hit.

“There hasn’t been a double-dip since the mid ‘80s, but we’re always looking for it. The markets are experiencing a mediocre recovery, but they are recovering,” said Caton.

He dismissed any substantial impact of the Greek debt crisis on the Australian economy, and also acknowledged China’s ‘growth story’ would soon not be the biggest one in the world.

“India’s growth story will be bigger than Chinese, mainly due to demographics. A decade ago India was our 14th largest export market — today it is the third,” said Caton.

Caton’s claims were recently supported by a Harvard-based economic historian, Niall Ferguson, who argued the Indian economy had a more solid long-term base (ie, domestic middle-class consumption) than the Chinese economy. Caton also predicted the Australian currency will fall to US$0.93 by the end of this year and to US$0.87 by end of June 2011, dismissing arguments it will reach parity or even surpass the American dollar.