Former Greek finance minister and ex-Sydney University lecturer Yanis Varoufakis has said Australia is “headed for a recession”.

“There will be a recession in Australia, because of the collapse of investment and because of the collapse of animal spirits – and this is because of what’s happening in China,” he told Fairfax Media in an interview.

Mr Varoufakis, who was involved in Greece’s highly publicised debt negotiations last year until a fall out with Greek PM Alexis Tsipras, said Australia’s dependence on China would be its downfall.

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He said a sudden recession would not necessarily be a bad thing for the Australian economy, likening recessions to bush fires “that clear out the forest, and help with the regeneration.”

What Mr Varoufakis did warn against was the slow “stagnation” or zero growth that has gripped countries such as Japan and parts of Europe.

“I’m not saying that is going to happen, but if I were a politician here, this is what I would be worried about,” he said.

The Australian economy’s transition away from resource dependence was taking more time than expected and it had been rewarding investors for the past two decades instead of re-investing profit into growth areas.

“There has been a significant reduction in investment in things that maybe were over-invested anyway, like mining, but there hasn’t been a transfer of that investment into other sectors, especially that of the innovation that [Prime Minister] Malcolm Turnbull is so keen on,” he said.

Last week, the ABS reported third-quarter business investment was down 9 per cent on the June quarter and down 20 per cent on this time last year.

While mining was down more than 10 per cent, manufacturing was up seven per cent, boosted by a weak Australian dollar.

Westpac said quarterly growth was at 0.7 per cent, equating to roughly 2.1 per cent for the year.