RBA Governor Michele Bullock cautioned today that financial markets may be underestimating global economic risks, warning that investors have taken a “Goldilocks view” of the outlook. Speaking at a forum, Bullock said markets appear to be “discounting the bad macroeconomic risks,” even as trade and geopolitical tensions threaten to slow global growth. She emphasized that the effects of the trade war will “play out over the next few years,” as tariffs are maintained or expanded by multiple countries, dampening trade and investment.
Bullock said the unpredictability of government responses to tariffs—rather than the general uncertainty surrounding them—was the biggest risk to investors’ confidence. “You just don’t know what might come out tomorrow morning,” she said, noting that sudden policy shifts could easily destabilize the currently “rosy” market outlook.
Addressing China’s economic struggles directly, Bullock pointed to the country’s ongoing deflationary pressures and excess industrial capacity, saying that “competing provinces” are cutting prices to maintain output, effectively exporting deflation to the rest of the world. She suggested that Beijing could do more to stimulate domestic consumption to rebalance its economy, adding that China’s “massive population” provides untapped potential demand if policies shift toward supporting households.
