Day 2 of Commonwealth Bank's Global Markets Conference in Sydney shifted the focus towards how some of the big forces discussed on Day 1 are playing out across businesses, households and financial markets.
AI adoption, consumer spending, state finances, government borrowing and the growing Australian bond market were among the major themes.
Here are five takeaways from Day 2.
1. AI investment is moving into a new phase
The huge amounts of capital flowing into AI have dominated investment discussions, but attention is increasingly turning to what businesses do with the technology.
The productivity gains will depend on AI spreading through the wider economy, changing business processes and improving products and services rather than remaining concentrated among technology companies and data centre developers.
That will require significant workforce change as businesses build new skills and rethink how jobs are done. The discussions also highlighted the potential impact on some entry-level roles and the growing cyber risks created by more powerful technology.
Australia's wider productivity challenge remains important. Capacity constraints in areas including construction, housing and skilled labour could make it harder for the economy to absorb the investment now flowing into AI, defence and infrastructure.
2. Households are changing how they spend
Higher interest rates and cost-of-living pressures are becoming increasingly visible in household spending.
CBA Head of Australian Economics Belinda Allen said the bank's transaction data was showing "signs that household spending is slowing".
After four rate rises, spending growth has eased, flows into mortgage offset and redraw accounts have slowed and some households have been drawing on savings to support spending.
"Households are having to make a choice about what they do due to higher inflation and higher interest rates," Allen said.
The slowdown is not uniform. Housing-related categories such as homewares and appliances have weakened, while restaurants, recreation and takeaway have held up more strongly. CBA data is also picking up structural shifts including increased spending on electric vehicle charging and AI subscriptions.
3. State finances face a heavier interest bill
Higher borrowing costs are also flowing through to state government finances at a time when infrastructure spending remains high.
Figures presented by S&P Global Ratings showed state interest costs are expected to reach around $40 billion by FY29, equivalent to about 7% of operating revenue and roughly double the pre-pandemic level.
S&P also forecast gross state debt to reach about $800 billion by the end of the current financial year, up from around $300 billion in FY19. States remain highly rated, but higher debt-servicing costs can reduce the financial flexibility available to fund services or respond to economic shocks.
A softer housing market adds another pressure point through lower stamp duty revenue.
CBA Head of Market Strategy and Rates Research Adam Donaldson said lower housing turnover and prices were having a meaningful impact on state revenues, with those effects likely to flow through to upcoming budget updates and borrowing requirements.
4. Refinancing is becoming a bigger part of the funding task
As borrowing programs grow, governments and other issuers are placing greater emphasis on when debt falls due, not simply how much needs to be raised.
The day's discussions showed borrowers increasingly focused on smoothing maturity profiles, maintaining liquidity buffers and spreading funding across different maturities and markets.
That reduces the risk of having large amounts of debt requiring refinancing at the same time, particularly when debt raised during the low-rate period is being replaced at considerably higher yields.
The challenge is likely to remain important if rates settle above the levels markets became accustomed to before the pandemic.
Donaldson said the shift in global saving and investment patterns, driven partly by AI, defence and the energy transition, supported a longer-term change in borrowing costs.
"So structurally, we're very firm on the view that rates and yields are going to be[MT1] higher," he said.
5. Liquidity matters more as Australia's bond market grows
Australia's bond market has become larger, more liquid and more international, helping governments and other borrowers raise significantly more funding.
Offshore participation has increased alongside bond turnover, broadening the pool of investors available to Australian issuers. But a more global market can also transmit overseas volatility more quickly into Australian fixed income markets.
That is putting greater focus on the infrastructure that sits underneath the market.
Repo markets, where securities can be exchanged for cash with an agreement to reverse the transaction later, play an important role in helping investors finance assets, manage liquidity and move collateral through the financial system.
Australia already has a sophisticated and highly international market, but central clearing, more efficient settlement and the ability to move collateral more easily were identified as areas that could support further growth.
As the bond market expands, those less visible parts of the financial system will become increasingly important to keeping it liquid and resilient.
