Former Greek Finance Minister Yanis Varoufakis predicts Australia is headed towards recession because of low domestic investment and the slowdown of the Chinese economy.
Varoufakis spoke to Fairfax media on Monday, stating characteristically that, “There will be a recession in Australia, because of the collapse of investment and because of the collapse of animal spirits – and this is because of what’s happening in China.”
However, he said, recession might also have positive effects. “The recession itself would not be the problem, because some recessions are necessary… Some recessions are a bit like bush fires that clear out the forest, and help with the regeneration,” Varoufakis said.
“The fear would be that this is something more secular, something more like stagnation, and a systemic crisis,” he added.
Varoufakis said that after 25 years without recession, Australia followed the same global pattern of weak aggregate demand and excessive corporate savings, which are being handed back to shareholders instead of being re-invested in productivity enhancement.
“There has been a significant reduction in investment in things that maybe were over-invested anyway, like mining, but there hasn’t been a transfer of that investment into other sectors, especially that of the innovation that [Prime Minister] Malcolm Turnbull is so keen on,” said Varoufakis, who was also economics lecturer at Sydney University.
He said the Australian government found the right model to finance and then commercialize research and development, by channeling both private and public funds into areas that would ultimately add to growth.