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National Australia Bank profit slide amid bad -

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The head of the National Australia Bank is predicting that the United States and Britain are headed
for a deep recession.

But as he delivered his company's multi-billion dollar profit results, John Stewart said he thinks
Australia can still avoid falling into recession.

Mr Stewart also said he is confident that the recent share market plunge won't spread to the
property market.

John Stewart is about to retire as the NAB's chief executive - and he spoke to our Business editor
Peter Ryan.

PETER RYAN: John Stewart, you've painted a gloomy economic outlook, how bad is it going to get?

JOHN STEWART: I think on a global scene it's going to be pretty bad for quite a long time. I think
in the Australian context, this is a good place to be, look by our recent past, it will feel
recessionary, I don't actually think we will go into recession. But there will be less economic
growth than say the last 10 years, but I still maintain that Australia is the best place to be in
these economic times.

PETER RYAN: But you think it's going to feel like a recession?

JOHN STEWART: Yes it will feel a bit tough for a couple of years, but I think the government have
taken early action and they know what they're doing and they're trying to stimulate the economy to
try and minimise the effects.

PETER RYAN: What about the United Kingdom and the United States, do you think they will fall into
recession and do you think that will really go to the rest of the world and cause a global
recession?

JOHN STEWART: Yes I do, the UK I think is already in recession, the US I think will slip in to
recession and the key factor in the US is when house prices stabilise, because house prices have to
stabilise for the economy really to get better. If we see that next year then the US recession or
economic downturn might be short-lived. But right now we should be assuming the worst.

PETER RYAN: Just when you mentioned lower house prices in the United Kingdom and of course the
housing slump in the United States, we've seen household wealth in Australia plunge, superannuation
funds really under attack. But do you think the next stage here in Australia is a big decline in
housing values?

JOHN STEWART: Ah no I don't, I think the reason for that is that suddenly in the US there was a
complete overbuild, there was just too much stock. Probably about a year too much of empty new
houses. We don't have that, in fact if anything in Australia we have an underbuild and we have the
demographics as such that more people are looking for housing.

So I think you might see at the worst, house prices slowing and maybe going sideways for a while
but I don't see any major correction in house prices in this country.

PETER RYAN: You're not seeing any major signs of mortgage stress defaults on home loans?

JOHN STEWART: No we're not and I think the fact that interest rates are now starting to go down and
we ourselves have reduced rates again this week. We think that will give a lot of relief to
homebuyers.

PETER RYAN: How far do you think interest rates will fall?

JOHN STEWART: It would not surprise me to see it fall by perhaps another one half a per cent of 50
basis points later this year and there may be even more next year.

PETER RYAN: Do you think the predictions of a cash rate of four to 4.5 per cent by March next year
are exaggerated?

JOHN STEWART: I think that's possible, look I think it's been remarkable through this financial the
way that government and the regulators and in particular the Reserve Bank and the commercial banks
have worked together for the good of the system. And I think you're seeing the same thing happening
here, I think the government are taking the right actions and so is the Reserve Bank to make sure
that we minimise any economic disruption to Australia.

PETER RYAN: You've copped a lot of flak over the last year for the independent rate rises outside
of the official moves by the Reserve Bank. But we are now seeing the cost of money between banks
falling ever so slightly.

How many more of those independent hikes do you think you'll be able to give back over the next
several months?

JOHN STEWART: That entirely depends on how money markets behave, it might also depend on how the
government and the Treasury choose to price their wholesale funding guarantees. Because if that
allows our cost of funding to go down and that's the banks cost of funding, then we will happily
pay back and reduce interest rates to consumers.

PETER RYAN: How exposed is Australia to commodity prices despite the resilience of China and India?
Do you think we're in for a sharp fall in commodities?

JOHN STEWART: I hope not, I think we're in for a fall in commodities and therefore the terms of
trade for Australia will not be as good as we've been enjoying recently, but I think it's all
manageable. I think that's what the Treasury and the government have in mind when they're starting
the economic stimulus package that they've come out with.

So I think of they're ahead of curve.

ELEANOR HALL: The chief executive of the National Australia Bank John Stewart speaking there with
our Business editor Peter Ryan. And there'll be an extended version of that interview on The World
Today website later this afternoon.