FX News: RBA cites Trade War Risks

FX News – The bruising trade war between the US and China could pose a “significant risk” to Australia and the world. That’s according to Reserve Bank of Australia Deputy Governor Guy Debelle, who spoke to the Economic Society of Australia.

According to him, a new research showed that consumers are still hesitant to spend their tax refunds. He added that Australia needed not to worry about being a “banana republic.”

On the flipside, he also said that the country was still less vulnerable to external shocks. That’s because Australia has a shrinking current account deficit.

Over the past decade, the country’s net foreign liabilities as a percentage of gross domestic product declined to their lowest. Most of these liabilities are in Australian dollars, meaning the currency serves as a kind of shock absorber.

The country has a net foreign currency asset position, Debelle explained. He emphasized that when the exchange rate falls, the value of net foreign liabilities also declines instead of increases.

Escalation in Trade War

Debelle issued this statement days after the global financial markets jittered last week after the escalation in the trade war.

The trade war has already damaged global exports as well as manufacturing. If it gets worse, economists and banks fear the world would slip into recession.

Last Friday, the US imposed a 5% tariff on $550 billion in Chinese goods. That came just hours after China unleased retaliatory tariffs on $75 billion in US goods.

The Australian dollar has lost more than 4% of its value so far in 2019. It had dipped to as low as $0.6677, which was its lowest since 2009.

Debelle said that Australia has gained “sizeable benefits” for global growth and welfare because of the current global trading system.

He then said that the current threats to the system would pose great threats to the country and the rest of the world.

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