Fear not, says Goldman Sachs

DIRE predictions about the state of the housing market are overstated and driven by fear, according to investment bank Goldman Sachs.

In a report for investors, Goldman Sachs chief economist for Australia, Andrew Boak, said that despite cooling, the economy was proving resilient. Suggestions of a housing market crash and credit crunch were overstated, the report said.

Easy financial conditions and improving conditions in the mining states were among factors that would support the economy, Mr Boak said.

The biggest pipeline of public infrastructure since the mid-1980s and increasing household incomes should also keep the economy growing at a pace above the longterm trend.

“A lot of the fear is being generated by anecdotal reports on the Sydney and Melbourne housing market. Some risks are real, but overall they look manageable,” he said.

Other city markets were not being affected by the cooling conditions, said Mr Boak, who believed the discussion around the housing market could be too Sydney-centric at times.

“There are lots of reasons the economy can do better than the doomsday consensus,” he said. “Yes, growth will slow but something close to 3 per cent over the next few years is quite a feasible scenario. That will keep downward pressure on the unemployment rate and upward pressure on wages and inflation.”

Goldman Sachs economists also believed that the impact of Labor’s negative gearing and capital gains tax proposals would be minimal.