Investment funds growth benefit real economy

Rapid growth of financial markets in Australia over the past decade, including in the pool of investment funds, had a “very positive” effect on the real economy, according to Reserve Bank of Australia (RBA) deputy governor Ric Battellino.

Growth of turnover in financial markets had increase by 290 per cent over the decade, and the pool on investment funds had risen to $1.2 trillion, he said, and “remarkably” shows no sign of slowing he said.

He was speaking yesterday at the launch of a benchmark report on the Australian investment industry by federal government body Invest Australia.

The Australian economy would not have been able to record the strong growth that it has if there had not been such a strong expansion in financial markets, he said.

He said the rapid growth in financial activity is due to rising private sector wealth, as this also has been rising faster than gross domestic product (GDP).

“Over the past decade, for example, household financial wealth has risen by about 170 per cent, compared with the 90 per cent increase in nominal GDP noted earlier.

“A lot of this increase in wealth has found its way into the superannuation industry, where it is professionally managed across a wide range of markets, and this no doubt has contributed to financial market activity.”

In addition, he said, innovation in financial markets “has increased the range of financial products available to savers and investors”.

“It has also reduced costs, so the barriers to saving and investment, and to changing portfolio structures, have diminished.”