The deterioration and heightened volatility within global equity and credit markets has made the world a riskier place in recent months, says Treasury.
Speaking at a Committee for Economic Development of Australia (CEDA) event in Sydney yesterday, Treasury Deputy Secretary Nigel Ray said Australia cannot rely on a "resurgence" in the global economy.
"Global growth has struggled to regain sustained momentum post-global financial crisis, and global aggregate demand remains weak," Mr Ray said.
"This is despite monetary policy settings in nearly all of the major economies remaining extraordinarily accommodative, and global public debt increasing since the global financial crisis.
"Global risks are tilted to the downside and have intensified in recent months," he said.
Markets around the world have deteriorated in past months, and volatility has heightened, Mr Ray said.
"Markets seem to be questioning whether global growth will be strong enough to drive corporate earnings and maintain low default rates in order to sustain current valuations," he suggested.
"In a lower growth, lower inflation world, there may well be continued heightened volatility on financial markets."
The IMF downgraded its forecast for global economic growth in its January update, Mr Ray said – the organisation's 17th downgrade in five years.
"Slower global growth has been accompanied by a number of trends that are observable across the global economy: slower growth in trade; weak business investment; slower productivity growth; slower population growth in advanced economies; low inflation; and lower inflation expectations," he said.
"More recently, we have observed that the convergence between emerging and advanced economies we have seen since the turn of the century is showing signs of stalling.
"If this occurs, it would affect the outlook for future global economic activity, and could have broader consequences," Mr Ray said.
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