The Buzz Around The 'R' Word - Is Australia Up For Recession?

  • Jan 17, 2019 AEDT
  • Team Kalkine
The Buzz Around The 'R' Word - Is Australia Up For Recession?

The slowdown in world economic growth has been observed in the last couple of months owing to severe US-China trade war, the downturn in the Chinese economy, uncertain Brexit situation, and various other disappointing macro-economic factors.

There is a growing discussion among economists on the probable recession like situation hovering around the Australian economy as well. No doubt, the country was able to survive strongly during 2008 financial crisis driven by robust China commodity demand, sound banking, and financial system with the strong balance sheet and limited debt exposure, high-interest rate regime unlike US and government’s three-year fiscal package.

The analysts are anticipating recession for the economy triggered by possible Australian housing market collapse as also suggested by a recent study released by The Organisation for Economic Co-operation and Development (OECD). The nation’s record-breaking high growth regime since almost three decades is now raising alarming eyes. The grave scenario of falling real estate prices in major cities such as Sydney, Melbourne, and Perth, is not unknown, attributable to tighter lending conditions and a major drop in foreign buyers. As per recent CoreLogic study estimates, Sydney has reported 7.4% fall in house prices and Melbourne 4.7% during the past year. The recent ABS data has reported a 9.1% dip in government building approvals during November 2018.

Economists at ANZ and Morgan Stanley have forecasted 15% to 20% decline in house prices in Melbourne and Sydney by 2019 end. A recent Citi study projects double-digit dip in house prices in major cities by year-end.

However, some economists and policymakers have time and again hinted that nation’s reserve bank might further decrease the low-interest record rate (currently at around 1.5%) to support the cooling housing market and avoid housing sector default. Although critics argue that there is no further room for interest rate slash, the impact of reduced interests on savings deposits of Aussies is to be balanced by RBA, as this might trigger household defaults.

Some economists argue that the unfolding correction in the Australian real estate sector is a more familiar periodic problem for year-ahead growth. The picture is not entirely negative as although slower than before, the home prices have been rising in Hobart, Canberra, Adelaide and Brisbane.

As recently quoted by a leading economist at NAB, that although the economy is growing below expectations, the non-mining sectors demonstrate growth potential on account of record low interest rates and lower value of Australian dollar.

Analysts are keeping a close eye on whether the probable housing sector collapse in Australian economy will bring the economy to its knees with the tougher landing of housing boom or whether the economy will insulate itself from 2008 crisis like situation driven by sound and rational monetary policy initiatives of RBA and stable fiscal stimulus introduced by the government at the right time. Economists are keeping a closer watch on the likely taxation policies change in the upcoming federal election. The Chinese demand-driven growth model of the nation is also dependent on the possibility of negotiation between world’s two largest economies over severe Tariffs and South China sea war.

While many negative factors may look to start weighing against the economy, strength from mining sector, monetary policy driven revisions and so forth, might still balance the scenario.


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