Speech Summary Recent Trends in Australian Capital Flows
Australian Financial Review Banking and Wealth Summit
Foreign investment has always played a big part in Australia’s economic development. While capital inflows have been a consistent feature, the composition of both inflows and outflows has changed over time. The speech highlights three noteworthy changes in recent years. In the mining sector, capital inflows are now coming in the form of offshore direct funding, rather than reinvested earnings as seen during the mining investment boom. As large LNG projects transition into the production and export phase, these inflows are likely to moderate. In the public sector, there has been increased participation of foreign investors in the domestic repo market which urges caution when interpreting headline statistics showing a decline in foreign ownership share of government bonds. For the banking sector, the noteworthy developments relate to short-term debt funding stemming from regulatory reforms and a post-crisis shift towards longer-term debt. The speech also touches on Australia’s net foreign liability position and net income deficit.