Dr Buiter said that he did not expect a financial crisis in China because most of the private sector debt was denominated in local currency.

But he believed it would be difficult for the economy to manage its debt problem without growth slowing substantially, to below 4 per cent.

"It can be done, but it has never been done, so I believe there will be a downturn which will of course impact of all advanced economies most – Australia," he said.

While Australia's economic fortune was tied to that of China given its export dependence, Dr Buiter said there were reasons to confident in its economic resilience.

Australia has been one of the better-performing advanced economies and has retained monetary and fiscal ammunition to weather the impact of a downturn, he said.

But Dr Buiter called on authorities to be prepared to start infrastructure projects on short notice as a means to stimulate economic activity, should China slow.

"I am surprised there is no long list at a federal, state and local level of 'shovel ready' infrastructure projects that have had environmental impact assessments done, and other considerations dealt with."

"[Projects] that are only waiting for a 'yes' and the money and can be activated whenever a cyclical downturn occurs. Apparently such a list doesn't exist and won't be around until 2020."


"I hope that the Chinese wait with their recession until then, but I doubt it."

Dr Buiter said increased infrastructure investment was not only "cyclically desirable, but structurally necessary".

He also said authorities would need to deal with a quite "spectacular housing bubble", a predicament Australia shares with Canada and New Zealand. These economies, like Australia, largely avoided the impact of the 2008 financial crisis.

"That mess was never cleaned up and in fact you have added to it. It has to be addressed through macroprudential policies."

So called "macroprudential policies", or lending curbs imposed by regulators could effectively be used to ensure a "soft landing" for housing in Australia, he said.

"If these [housing risks] are not managed well, they can be the trigger for the next slowdown."

In a presentation to the financial media, the widely-followed economist and former Bank of England official said global economic conditions were "benign" with growth upticks being experienced in most advanced economies.

An annual growth rate of 2 per cent in the US was enough to keep the Federal Reserve on track with its planned rate hikes, paving the way for slimming its balance sheet, as the central bank began unloading assets it bought to support financial conditions.


"It should be the non-event of the century because they can just gradually slowly [sell assets] in a way that doesn't disturb the market in any way."

Dr Buiter said fears that a trade a war that may result from President Donald Trump's policies had not materialised but that necessary measures may also be delayed.

He said the US had to reinvest in its ailing infrastructure stock – while its complex tax system was in urgent need of an overhaul.

"My wife and I are PhDs in economics but we can't do our own taxes. Occasionally I try but then after half an hour I find out I am reading it upside down."

The US administration would have more luck in areas where Congressional approval was not required – such as dealing with the regulatory burdens that has stifled economic activity.

"The US is the ultimate box-ticker's paradise – it is a drag on efficiency and growth. The US has the lowest rate of new firm creation in the last thirty years, and massively reduced labour mobility."