Housing Debt Downturn To Severely Impact Australia, Says Morgan Stanley

  • Oct 30, 2018 AEDT
  • Team Kalkine
Housing Debt Downturn To Severely Impact Australia, Says Morgan Stanley

The Australian economy has been getting impacted by several macroeconomic factors which have the potential to derail the broader economic growth. The increased regulations for the banking sector as a result of the interim report from the Royal Commission could impact the broader sector which, in turn, could impact the growth prospects of the economy. The market players are expecting that the Australian economy is significantly exposed to a risk of deleveraging the household debt. The increased debt coupled with a decline in the housing prices as well as stricter lending conditions are considered to be the major headwinds. The consumption behaviour of Australians might also get impacted primarily because of the weakening of the credit growth as well as lower housing prices.

A key official of Reserve Bank of Australia had stated that because of the APRA, the investor lending growth has been witnessing the negative impact. According to her, the unfavourable momentum in the housing space has been seen primarily because of the switch towards the first home buyers as well as owner occupiers and this switch has been viewed as a positive thing. However, global economists are of the view that income growth, as well as employment, are the primary factors which help the consumption rather than the housing prices. According to them, not much of a wealth effect was felt when the strong momentum in the Melbourne, as well as Sydney housing prices, were seen. Therefore, the wealth effect would be lesser in the current scenario when the prices are witnessing a downtrend. As per the economists, the consumer sentiments are higher than the average. 

Another factor which has been weighing on the Australian economy is the report of the International Monetary Fund or IMF. The fund has earlier stated that the increased trade tensions could prove harmful for the Australian growth. Moreover, a not-so-strong outlook for the emerging markets on the back of increased debt would continue to weigh on the minds of the investors. The tit-for-tat approach which has been adopted by the United States and China might negatively impact the global business environment and confidence as these measures have the potential to impact the business supply chains globally.

Moreover, the Federal Reserve’s decision of increasing the interest rates have also impacted the investors’ sentiments earlier and a rise in rates could also push the dollar value leading to the depreciation of the currencies of the emerging economies. However, the recent global sell-off have pulled down the investors’ confidence in the global economy and some of the market observers are expecting that the Federal Reserve might not consider its policy of quantitative tightening.

A key official of Reserve Bank of Australia stated that the apex bank’s October Financial Stability Review or FSR highlighted that the Australian banks are in a good position as they have sufficient liquid assets. According to them, the leading banks are near to meeting the robust capital benchmarks which have been set up by the APRA or Australian Prudential Regulation Authority. They added that this type of position can be regarded as favorable in case of the downturn.


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