The head of ANZ says he sees a "dangerous situation" with global markets.
Nuno Matos, ANZ's chief executive, says the competition for capital is intense globally, driven by the AI and data centre build-out, which is feeding an expenditure super-cycle.
He says the combination of that race for capital, the prevailing level of government expenditure, higher and stubborn inflation and rising interest rates are a serious problem.
"Globally, undoubtedly, the combination of those four factors, and Australia is not different in that regard," he said today.
"They are contributing to a competition for capital. We never saw this amount of spending in our lives, in our lifetimes.
"We have a very curious situation in the world where we have equity markets at record highs, basically because of the tech wave and basically because of the AI wave, but at the same time you have record highs of interest rates.
Mr Matos was giving evidence at a parliamentary inquiry in Canberra. The chief executives of Australia's big four banks will appear before the inquiry.
Global shock could hit Australia's economy
Mr Matos said he did not think Australia was heading for recession.
He said he was expecting Australia's economy to slow down noticeably in the near future, but he did not think it would contract.
Last week, Reserve Bank governor Michele Bullock said something similar. She said the RBA was not forecasting a recession for Australia.
However, Mr Matos said it was possible that Australia could be hit by a negative global shock, linked to the AI build-out and intense global competition for capital, which would cause serious economic problems in Australia.
"There is much more risk, at this point in time, for that scenario coming from outside," he said.
"Now, do I expect that? No. But that's not impossible to happen."
He said so much capital was being invested in data centres and AI-linked industries and companies that things could get very "complicated" if that process was derailed.
Government spending adding to inflation
Simon Kennedy, Liberal MP and deputy chair of the committee, asked Mr Matos if government spending was too high and contributing to Australia's battle with inflation.
Mr Matos said any spending reduction in the economy, "public or private", would take pressure off inflation. But he said high inflation was a global phenomenon at the moment and it was the consequence of several trends.
He said the huge global investment in renewables, the huge growth in defence spending, and the massive spend on AI infrastructure were creating large capacity pressures for economies.
He said all governments should be reflecting on how they competed for capital.
"Today, governance and administrations in the world, they compete fiercely for capital, especially long-term capital," he said.
"Every time the administration goes to the market, they are now competing with AI infrastructure, which also demands long-term capital. This is creating inflation.
"Undoubtedly, less spending in general will contribute to lower inflation, and that would contribute to a lower interest rate environment if we had less spending."
Mr Matos said there were times during the economic cycle, such as during recessions, when it was right for governments to "jump in and support the economy."
But, he said, over the longer term the private sector should lead investment and spending "to make an economy sustainable".
Mr Kennedy asked: "So we really need to see a rebalancing of that equation [in Australia at the moment]?"
Mr Matos said that would be a positive thing.
"I think everybody would love to have an equation where private capital leads investment and spending," he said.
However, he did not nominate where he thought governments should cut spending.
AI has a 'dark side'
On the topic of AI, Mr Matos also warned about the dangers of pushing ahead with a widespread adoption of AI without "guardrails" and "global regulation".
"AI has a dark side," he told MPs.
"AI can be used maliciously to [commit] fraud, to defraud customers, to scam customers, to impact critical infrastructure, being bank infrastructure, public infrastructure. That's very obvious.
"Which means that going into a wide adoption of AI without having the adequate guardrails, it's a big problem.
"[And] on the job side, I can't tell you if AI will have a net positive, net negative, or neutral impact on jobs in the world, or in Australia.
"I can't tell you because if I tell you, I will be speculating.
"I can only bring the following rationale. In the past, all technologies that were found in the world actually supported more employment and more growth. Until today, that has been the trend.
"The question is if AI will be different, meaning if some of those [warnings] we listen to, [for example], that AI will kill 50 per cent of jobs happen, [then we] will have a crisis and it's not going to be in Australia [only], it's going to be a global crisis.
"This is one of the few examples where I would say some global regulation is needed to make sure that society does not [get] into trouble."
Boss defends ANZ's $7.6b profit
ANZ recently posted a full-year cash profit of $7.59 billion.
Committee chair, Labor MP Ed Husic, asked how much that profit had increased on last year's result.
"It's up 31 per cent on a reported basis. On a real basis it's up 10 per cent," Mr Matos replied.
The bank's statutory profit was $7.3 billion, up 23 per cent on the year.
Mr Husic said everyone in Australia seemed to be going through tough times at the moment except for Australia's biggest businesses.
Mr Matos defended the operation of Australia's big banks. He said they were "performing their role in delivering to society".
"The mortgage business is one of the least profitable businesses in banking in Australia, and it has reduced profitability year after year, at least in the last 20 years," he said.
