China, US tensions no good for our economy, warns RBA
A RISE in trade tensions between China and the US poses a growing risk to the health of the nation’s economy, the Reserve Bank has warned.
But Australia’s central bank is not fazed by the fall in house prices in key capitals such as Melbourne and Sydney or worried about the ability of homeowners to pay back their loans as interest rates rise.
The assessment was delivered in the RBA’s biannual financial stability review released yesterday,
The health check on the nation’s financial system and economy comes in a week in which global markets were shaken by a sharp sell down on Wall Street
“Downside risks to growth have become more prominent since the previous review, particularly due to the rise in trade protectionism,” the RBA’s latest report said.
While the impact of the trade war between the world’s two biggest economies has so far been “relatively modest” the RBA said this may not remain the case.
“If the imposition of trade barriers were to intensify, or if it materially affected business sentiment and decisions, the negative impacts on economic growth could be more significant,” it said.
“Australia would be sensitive to a sharp contraction in global growth or dislocation in global financial markets because of the importance of trade and capital inflows.”
More than $90 billion was stripped from the Australian share market this week in a rout triggered as investors in the US reassess their expectations around the pace of interest rate hikes in the world’s biggest economy and fret about trade tensions with China.
The RBA points out the era of ultra-low interest rates spawned in the wake of the global financial crisis has meant investors have been willing to accept more risk of less return.
This may leave them exposed to unexpected increases in interest rates or a global shock, it cautioned.