The AIMA Capital Markets and Economic Growth report estimated based on Europe’s economy that increasing capital markets by one-third generates a long-term real growth rate in per capita GDP of around 20 per cent.
According to the report the capacity of the banking sector to be able to fulfil long-term financing needs has been restricted as a result of regulatory changes following the global financial crisis.
Raising capital through capital markets has therefore become increasingly vital.
The report said, however, that the positive impact of capital markets is dependent on the availability of funds for long-term risk investments and the incentives for improving corporate governance.
AIMA Australia chairman Paul Chadwick said the paper demonstrates the “strong correlation between growth in debt and equity markets and growth in the real economy.
“It suggests there could be considerable economic benefits to Australia from growing the country’s capital markets, stimulating demand for pension funds and other investment products that benefit greatly from deeper capital markets,” said Mr Chadwick.
AIMA chief executive Jack Inglis said bank lending is clearly failing to keep up with demand, which could affect global economic recovery, unless new sources of financing can be found.
“We would therefore encourage governments globally to implement policies that help to protect and grow capital markets,” he said.
