Stephen Walters is Chief Economist for the Australian Institute of Company Directors (AICD), with an alert for Australia
But first, a note … I am wary of the recession callers, some are genuinely concerned but miss the resilience of the Australian economy. Some are just out to sell crappy newsletters and generating fear is a productive sales tactic for flogging rubbish to the ill-informed.
OK, on to Walters, with some useful points; indeed these have been a discussion for a few years now but rising rates are bringing them more sharply into focus. OK, here we go:
- Australian "banks don't just fund themselves domestically, but they're active in offshore markets, including short-term money markets in the US
- as … interest rates in the US are going up … means the funding costs for Australian banks are also going up
- … it's probably going to feed through into mortgage rates
- ... causing a bit of a squeeze in the household sector
- ... households need to brace themselves over the next five years at least that interest rates will be going up
Combine higher rates with very slow wage growth and, yeah, that's a risk to the economy. Consumer spending is a huge part of the economy, and yesterday's GDP result reflected slow spending.
Anyway, there you go. A reminder for most of us and an ICYMI for the rest!
Final word from Mr. Walters:
- I don't know any mainstream Australian economist who's forecasting a recession anytime soon … But often that's the nature of recessions - they creep up on you when you don't expect it.
And, final word from me …
Yep, household sector a key risk, keep an eye on labour market developments and rates. A slowing property market could weigh also ('wealth effect'). A recession is unlikely to creep up on you if you are informed. (And, for the purveyors of, and suckers reading, junk newsletters, economic growth is also unlikely to creep up on you if you are informed)
