No need for panic, say top CEOs
By Leonie Wood and Nassim Khadem, with Michelle Grattan | theage.com.au | 28 March
Australia's top chief executives do not believe the local economy is headed for crisis despite rising inflation, sharply higher interest rates, wild fluctuations in global financial markets and big falls in personal wealth following the plunge in sharemarkets.
An exclusive survey of corporate leaders conducted this week by The Age shows chief executives of companies including Telstra, the National Australia Bank and Leighton Holdings, and leading investment banks remain cautiously optimistic about Australia's economic and corporate prospects. Most of those interviewed do not expect any improvement in the economy for at least 12 months.
The CEOs said that while extreme volatility in global credit and equity markets had sent bank lending rates soaring and unnerved sharemarket investors, Australian companies generally were in much better condition than their peers in North America or Europe.
The survey comes as Westpac followed the lead of NAB and announced interest rates on its home loan products would rise by 0.10 of a percentage point to 9.37%. It is the second move by Westpac in a month, which was one of the first banks to raise its lending rates just days after the Reserve Bank lifted the cash rate to a 12-year high of 7.25%.
The impact of the falling value of shares was reflected in figures released by the Bureau of Statistics showing the financial wealth of Australian households fell in the three months to December.
Further dramatic slides in the market point to a much greater fall in the March quarter.
"This is not a time for any company to over-extend itself," NAB's chief executive John Stewart told The Age.
"The situation for banks in the US and in Europe is very serious because they have the problems in the debt markets combining with worsening economic conditions," Mr Stewart said. "I am pleased to say Australia is in a much better position because although we have the same problems in the debt markets, we still have a strong economy."
The Age asked the country's most influential corporate decision makers how they were dealing with the flow-on effects of the turmoil on global financial markets.
Telstra's chief executive, Sol Trujillo, said that while the local economy had weakness in some sectors, "overall I think the Australian economy is in good shape to weather a slowdown elsewhere in the world".
Owen Hegarty, who heads the gold and copper producer Oxiana, said the resources sector remained very buoyant.
Several of the CEOs contacted by The Age were concerned that the Reserve Bank of Australia's efforts to shackle inflation by lifting official interest rates could prove too damaging in the current environment. Some warned that higher rates would hurt consumers and do nothing to halt the burgeoning forces of inflation in the resources sector.
The CEOs' cautiously upbeat comments echoed comments by the Reserve Bank, which on Thursday expressed a similarly positive outlook for the economy.
In its half-yearly Financial Stability Review, the Reserve argued that Australia's lenders and borrowers remained in sound financial shape, and there was no crisis brewing.
In Washington, Prime Minister Kevin Rudd has warned the banks to be "very, very cautious" about increasing interest rates above changes in the official rates. "All our commercial banks should bear in mind . . . that working families are under financial pressure," Mr Rudd said.
First published by TheAge.com.au on March 28 2008
Visit theage.com.au for the latest news updated throughout the day
