Central bank cuts back Aussie growth forecast

FALLING property prices are a “significant area of uncertainty” for the Australian economy, says the Reserve Bank, which cites weak consumer spending and income growth as it cuts its economic forecasts.

In its latest quarterly report card, the RBA has cut its forecast for economic growth this financial year from 3.25 per cent to 2.5 per cent, and reduced inflation expectations from 2 per cent to 1.75 per cent. The central bank said it was concerned that wage growth might not pick up enough to offset the spending and confidence drag from falling house prices.

“The outlook for consumption growth hinges on household income picking up — and by enough to offset households responding to falling housing prices by reining in their spending,” the bank said in its Statement of Monetary Policy yesterday.

“The board has paid close attention to developments in the housing market and the implications that lower prices might have for construction activity and household spending decisions.

“The board has also considered how the prospects for consumption growth would be affected if household income growth does not pick up.”

The bank rejected speculation in the real estate industry that would-be home buyers were being shut out of the mar- ket because banks were tightening lending criteria.

Instead, it said fewer investors and owner-occupiers were willing to buy because of concern about losses if they purchased in a falling market.

“The slowing in credit growth is consistent with reduced demand for housing finance, particularly from investors,” the report said.

“Indeed, liaison with major banks and mortgage brokers indicates that they have been receiving significantly fewer loan applications over the past year or more.”

Also yesterday, new data pointed to another spike in mortgage stress. Research house Digital Finance Analytics said a record 1.026 million households were under mortgage stress, up 2200 last month, representing 31 per cent of households with loans.

Mortgage stress is when households have too little income to pay living and housing costs without drawing on other savings or taking on more debt.