Housing slump fuels slowdown concerns

High household debt and shrinking economic growth are clouding Australia’s financial stability, while the property price slump in Sydney and Melbourne could lead to a renewed tightening of credit, the Reserve Bank says.

The RBA said on Friday that while domestic economic conditions remained broadly supportive of financial stability, slowing GDP growth over the past six months had dampened the outlook for consumption, while the housing market decline could increase banks’ perceptions of the riskiness of housing lending.

“(This could compound) the somewhat tighter availability of credit seen to date,” the RBA said in its April Financial Stability Review.

“Greatly reduced credit supply would be detrimental to the economy and so financial stability.”

The RBA said vulnerabilities in key trading partners and global financial markets also remain elevated, while the likelihood of an event adversely impacting those vulnerabilities had seemingly increased.


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