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GST bringing on slowdown: Caton

A STEADY slowdown is approaching, thanks largely to the GST, says Bankers Trust chief economist Chris Caton.

He told a recent gathering of SMCR Financial Planners’ clients that the stock market was also heading for a correction although a crash was unlikely.

Mr Caton said it was only two years ago that Australia was described in international circles as the miracle economy, able to withstand the Asian crisis.

He said, in the short time since, Australia had become an old economy in need of structural change.

“The new economy is a real thing and I think there are some bargains out there,” he said.

“It is basically a whole new way of doing business.

“It’s a way to eliminate costs, make prices to consumers more transparent and to increase efficiency.”

“You can still make money in the technology sector but only if you know what you are doing.

“There will still be opportunities but I don’t think the whole sector will continue moving.”

National Australia Bank managing director and CEO Frank Cicutto also touched on the ‘new economy’ at a recent Australia-Israel Chamber of Commerce luncheon.

“There is no doubt that what was originally thought to be nothing other than Wall Street hype or fantasy has now become a significant influence on capital flows and investment throughout the world,” Mr Cicutto said.

“Given that Australians now lead the world in terms of individual share ownership, anything that has a major impact on share prices and company performance should be of general interest.

“I believe we are seeing the latest in a series of impacts from three broad trends – globalisation, major advances in computing and telecommunications technology and deregulation of trade and financial markets.

“People have suggested globalisation and technology have combined in the US to bring faster productivity growth, higher profits, higher wages and lower inflation,” he said.

“From that they have made heroic assumptions.

“Firstly, that technologies will lead to permanent productivity growth.

“Secondly, that traditional links between rapid economic growth and inflation no longer apply and, thirdly, that traditional methods of valuing and pricing equities no longer apply,” Mr Cicutto said.

“They have argued that conditions in the new economy will favour certain industries such as computing, Internet services, telecommunications and media and not other such as commodities, manufacturing or financial services.

“They have also suggested that national economies that are not home to plenty of these high technology industries will inevitably suffer from low growth,” he said.

Mr Cicutto said, rather than being simply a ‘new economy’, what was really happening was the widespread application of computing and telecommunications technology and its observed economic impact.

“The challenge is for the whole economy to harness the gains from this technology,” he said.

“For me, the issue of the old economy versus the new is less important than the issue of how rapidly countries reap the benefits of globalisation, technology and deregulation,” he said.

“In that regard I believe Australia is well placed.”

Mr Cicutto said banks would continue to be in the vanguard of the industrial changes necessary for Australia’s economic success.

“The image problems banks face in Australia are related to the fact that they have gone faster than other industries,” he said.

“They have assumed that the logic and necessity of the transformation would be understood and appreciated by all stakeholders.

“In retrospect, that turned out to be a fundamental error of judgement,” Mr Cicutto said.

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