Australia’s economy will be damaged unless businesses stop saving and start borrowing again, a high-ranking banker warned in the CBD last week.
NAB business banking executive Joseph Healy made the comments at a Wednesday lunch organised by think tank CEDA, the Committee for the Economic Development of Australia.
He said: “We may be storing up problems that will be reflected in our … capacity for wealth generation in the future.”
Mr Healy’s speech came as business borrowing levels dropped to four-decade lows this year, meaning that businesses are holding more cash and are reluctant to invest in new technologies.
Mr Healy said the downturn is partly because economic problems in Europe are impacting investor confidence in Australia.
“Some commentators might say that all we’re really seeing in Australia right now is the same as we’re seeing in other developed economies … [but] we are in a very distinctive set of circumstances here,” he said.
Mr Healy spoke positively about the Australian economy, saying: “As much as we might moan and complain sometimes about our economy, there is no developed economy anywhere in the world that you would rather be in, live in and think about the future in than this economy.”
Speaking at the forum on behalf of city businesses was Sydney Business Chamber director Patricia Forsythe, who joined Mr Healy in emphasising the importance of strong leadership to restore investor confidence.
“We need a new spoon of optimism and clearly some strong leadership at the political level, at the business level,” Ms Forsythe said.
She also called for political changes, saying “it can’t come soon enough that we have a revision of the planning system, that we have a review of local government, that we have an attitude now of encouraging business … we have to de-risk the system.”
Both speakers discussed the potential consequences of continuing underinvestment, and Mr Healy highlighted the plight of the Eastman Kodak company, which went into administration in January this year.
He described the company as “one of the great icons of the business world.”
“That company failed to adapt to a changing world even though it had all of the tools and resources to adapt, but failed to do so,” he said.
ABC economics correspondent Stephen Long says there are spending opportunities in mining, but other factors hamper enthusiasm for investment.
“High Australian dollar, uncertain global outlook and high interest rates [are] hitting demand and investment,” he said on Twitter.
The retail sector is reluctant to spend money at a time when consumers are less willing to buy.
Speaking to the Australian Financial Review, Harvey Norman co-founder Gerry Harvey said “It’s got to the stage where there’s no incentive to open a major new store in Australia.”
“Our rate of expansion in Australia would be lower now than it’s ever been.”
However, the Managing Director of Sydney energy provider Ausgrid, George Maltabarow, has highlighted the need for investment in infrastructure, which he says has been neglected for years.
“Previous regulatory regimes were overly focussed on price outcomes at the expense of … timely investment,” he said.
“And that means we’re having to catch up and invest now, which means consumers are paying for it all in one hit.”
Managing Director of the Entrepreneurs’ Organisation Sydney, Carden Calder, chaired the CEDA event.
She said: “One of the things I take away from it … is about the need for leadership, and for someone to take the first steps, perhaps with a very well-informed perspective when they do.”
Businesses are not the only group borrowing less, with the joint JP Morgan and Fujitsu Australian Mortgage Industry Report, released in March, suggesting homebuyers are also avoiding loans.
Employers are also more likely to be “firing than hiring, saving than spending” as underinvestment continues, according to Mr Healy.
“Realism and confidence is a powerful mix, but it’s not an easy mix to put together … failure to be confident about your ability to deal with those challenges can be a recipe for failure.”
This article was originally written in April 2012 for a university assignment, and was modified substantially for submission to Alternative Media Group’s City News newspaper. It appeared in the April 26 edition.
This post was made on 4 May 2012.