very much on the asset management industry and its involvement in financial markets. 5 this focus reflects a couple of factors. the first is a structural one. and that is that the pool of assets managed by the asset management industry has grown substantially relative to the size of the economy. in australia, for example, in the early 1990s the assets in managed funds were equivalent to around 40 per cent of gdp ( graph 7 ). today, the figure is 125 per cent. and globally, asset managers are estimated to have around us $ 76 trillion in assets under management, equivalent to around 55 per cent of global banking assets. 6 so the industry is very large, and it is getting larger. long - term forces, such as ageing populations and increased wealth, are important factors here, though the changes in the banking system that i have just spoken about have played a role more recently. the second factor has a more cyclical element to it. and that is a concern about the possible fallout from the search for yield that has resulted from the very low global interest rates. money has flowed into collective investment vehicles that invest in a range of higher - yielding assets, including those in emerging markets. many of these vehicles allow investors to redeem their funds at short notice, even though the underlying assets are not particularly liquid, and are likely to be even less liquid at a time when there are large - scale redemptions. this has occurred at a time when liquidity has declined in some markets, partly in response to a lower appetite for risk and tighter financial regulation. 7 this combination of developments raises the question of what might happen in stressed conditions. this increased focus on the asset management industry has seen a number of bodies either commission or issue reports on the industry over recent times. these bodies include the international monetary fund, the financial stability board and the international organization of securities commissions, and the us financial stability oversight council. 8 it has become quite a crowded field! the underlying concern is not that these vehicles will be unable to meet their obligations to their investors, but rather that they could serve to spread distress across the broader financial system. two features of these vehicles, in particular, have drawn attention. the first a fuller discussion of these issues can be found in price and schwartz ( 2015 ). this estimate of assets under management, taken from imf ( 2015 ), is based on the world ’ s top 500 asset managers at the end of 2013. it includes some double - counting due to cross - investment among

environment is very different from that in the middle of the 2000s, this earlier experience suggests that we need to watch the financial side of the global economy very carefully, particularly when interest rates are unusually low. ( iii ) domestic demand in asia the third issue i would like to touch on is the growth of domestic demand in asia. for some decades, many countries in asia have had a growth strategy focused on exports. given the strong growth in consumption in the major western economies, this strategy worked. however, many of the countries in asia recognise that given the subdued outlook for the advanced economies, there will now need to be a stronger emphasis on growth in domestic demand than has been the case in the past. china provides a good example here. over the past two decades, the share of household consumption in chinese gdp has declined from just under 50 per cent to 35 per cent – a very low level by international standards. this decline reflects two broad developments. the first is a reduction in the share of national income going to households ; in the early 1990s, this share stood at nearly 70 per cent, but by late 2008, it had fallen to less than 60 per cent ( graph 6 ). the second factor is an increase in the household saving rate ; in the early 1990s, around 30 per cent of household income was saved, while today this share is close to 40 per cent. graph 6 china – household income and saving % % disposable income saving ratio share of nominal gdp share of disposable income sources : ceic ; rba in china, as in many parts of asia, there is now a recognition that policies to promote consumption are likely to play a more important role than was previously the case. in the past, strong consumption growth was often seen as something that would follow strong exports, rather than be a driver of the economy itself. this view is gradually changing and this is leading to an increased focus on structural reforms to increase the share of national income going to the household sector and to reduce the household saving rate. while reforms in these areas can be difficult, they are important if asia, as a whole, is to continue to grow strongly in the face of subdued demand for exports from the region. how things play out in each of these three areas – public - sector debt, capital flows and structural policies in asia – will have a significant impact on the global environment in which the australian economy finds itself over the year ahead. as the reserve bank has spelt out a number