The RBA thinks the Australian economy is doing all right. Unemployment is low at 5.3%, GDP is 3.1% and we have 2% inflation. Business confidence is upbeat, the all-important non-mining sector is warming up nicely and federal infrastructure dollars are injecting activity into the economy. Plus, exports of our dirt (coal) and gas (LNG) remain strong.
But debt could ruin this beautiful thing…
The Sydney and Melbourne housing markets are cooling down. People have worried about the risk posed by the recent housing bubble, so in one way it’s a good thing. But… household debt to disposable income sits at a record-high 185% and a million interest-only loans switch to principal and interest over the next few years raising the average mortgage by up to $18,000 a year. And if wages growth stays MIA, there’ll be tears before bedtime.
Wages growth matters. People with more money, spend more, and that feeds the economy. But the last decade of low growth has left real wages stagnant. But, once unemployment gets below 5%, the iron laws of supply and demand should kick in and wages should finally start to rise. That will fuel inflation and rate hikes. The RBA reckons this will happen over the next couple of years.
Whatever happens, Loan Market is here to help your clients navigate through these times. Put us to work!