Recession not yet a worry for Reserve
A RESERVE Bank official believes Australia is not in any immediate danger of sliding into recession, but says the nation will need to be “resilient” when one inevitably occurs.
The dreaded “R” word has been raised in economic circles since last week’s June quarter growth figures clocked in at a wafer-thin 0.2 per cent, lower than expected.
But Luci Ellis, head of the central bank’s financial stability department, said yesterday the nation’s 24-year run without a recession looked sustainable, even accounting for a painful Chinese slowdown and lower commodity prices.
“One (a recession) will happen in my lifetime, but I really don’t want to put my money on exactly when,” Dr Ellis said.
“I don’t put a lot of score on the idea it will happen imminently,” she told a Sydney real estate symposium. “Ultimately, it will happen and I guess it’s part of my job to make sure the nation is resilient.”
She said Australia’s long run free of a recession was “a great outcome”.
She also said those responsible for managing lending risk needed to put more emphasis on commercial property loans, rather than mortgages, as the real estate boom progressed.
“It is these segments of lending that tend to grow in importance in the late stages of a boom and to account for a disproportionate share of loan losses in a bust,” she said.
“If we are looking for surges in credit growth as precursors to painful downturns, we should bear in mind that, historically, these surges have been evident in business credit more than in housing credit.”
Property prices across Australia’s major capital cities shot up 10.2 per cent in the year to September, according to CoreLogic RP Data figures.
However, those gains have also brought about lean rental yields, especially in inner Melbourne and Sydney.
The Australian Prudential Regulation Authority has tackled the hot spots head-on.
It has told major lenders to keep growth in loans to property investors below 10 per cent a year.