Strong neighbourhood brightens nation's prospects

Developments there are not reassuring.

While the giant economy appears on track to expand by 5 per cent this year, at least according to official figures, the headline number papers over concerning areas of weakness, not least in the property sector.

The nation's largest developer, Country Garden, is expected to default sometime in the next day or so.

And recent government efforts to arrest the deterioration in the sector appear so far to be having limited effect. Investment has continued to plunge and new home sales collapsed even further last month, to be down 24 per cent so far this year after falling almost 40 per cent last year.

This matters greatly to Australia because so much of the iron ore, coal and other minerals we ship to China are turned into the steel and other materials used in housing construction.

Treasurer Jim Chalmers says China is "high on the list of global economic concerns. Our exposure to a weaker Chinese economy is obvious".

Add China's struggles to high local interest rates and the Middle East conflict and "you can see why we expect the Australian economy to slow," he says.

Still, the Reserve Bank might take some comfort from the fact that the region of which Australia is a part remains the most dynamic in the world.

In its latest assessment, the International Monetary Fund forecast the Asia Pacific region will grow by 4.6 per cent this year - compared with 3 per cent for the world economy - and will account for two-thirds of global growth.

There are, of course, challenges and doubts. The IMF has warned the slowdown in China's property sector will weigh on growth in the region, as will the tilt in global demand away from goods and toward services and the trend for countries bringing more production back onshore - a response to the vulnerability of supply chains highlighted by the pandemic.

But the Global Business Policy Council predicts that the region will continue to outperform the rest of the world over the next four years, and Australia will benefit.

The council reckons that growth in the region will average 4.1 per cent a year through to 2027. India will lead the way with an average annual expansion of 7 per cent, followed by China (4.7 per cent) and Australia coming in third (2.7 per cent).

Taking a longer view, University of New South Wales Business School economist Richard Holden thinks it is within Australia's grasp to set itself up for another 30-year recession-free period of growth, like that experienced from the early 1990s until the pandemic.

But to pull off such a rare double act will not be easy.

Professor Holden warns that the nation will have make some hard decisions and get a lot right.

Recent history is not promising in this regard.

It has been two decades since the country's last major economic reform, the introduction of the GST.

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Professor Holden told the National Press Club the tax system has, as a result, become "increasingly outdated, bordering on obsolete".

Others areas, too, are in dire need of change, from investment in research to improving education standards, decarbonising the economy, boosting productivity, preparing for the growing costs of an aging population, tackling the housing crisis and strengthening supply chains without giving up the benefits of open trade.

It is a formidable list and any delays or missteps could be costly, Professor Holden warned.

"Our inability to make major reform is a significant risk. Every year that we are unable to enact important reforms increases the chance of a recession if we're hit by a global or domestic shock," he cautioned.

Going on recent experience, more shocks is about the one thing we can expect.