Economy is Robust
Interest rates – higher from next year – that’s the latest forecast from the influential OECD, The Organisation for Economic Corporation and Development, from its latest economic outlook.
Its out overnight, and it says Australia’s economy will keep growing at a robust pace.”
Now, if you’re in retail or anything to do with the household sector or car sales, for example, I reckon you would describe the economy as anything but robust.
But the OECD says strong growth in other parts of the world, is pushing up commodity prices and that helps Australia’s exports and improves our terms of trade which you can see right here.
Now, the OECD does see vulnerability. It says housing and the remaining debts of people have taken on to buy property. Substantial mortgage borrowing has households heavily indebted, it says.
Another vulnerability is our banks, which is odd considering the ongoing inquiry into the whole sector. Australia is “vulnerable to ‘too big to fail’ risks” due to its highly concentrated banking sector.
This means which Australia’s big four banks holding 80 percent of deposits and around 80 per cent of mortgages, if house prices fall sharply, it will have a massive impact on their profits and their capital.
Now if the banks get into trouble, and that’s a big IF, the banks recently boosted their capital. But if they got into trouble, then the government – you, the taxpayer, have to bail them out as they are too important. But that said, the financial system inquiry chairman David Murray reminded me last night that no depositor has lost money in an Australian bank collapse since the 1890’s.
What I sense is the OECD is trying to encourage the government to push more global competition to our banks but just remember that first comment – its also the OECD’s last comment.
Australia’s robust growth will continue – sop keep working, keep paying off the mortgage, we’re all okay right now.
The Dow Jones jumped 10 points overnight
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