Monday, June 17, 2013

Housing could hobble wider Australian economy

Commodity dependent economy relying on China, seven rate cuts failing to significantly stimulate, banks relying on wholesale funding. Banks have reduced their exposure but still need 85 billion on funding for the next twelve months, 2/3 from offshore. Like Canada, it all falls to the bond markets.

State Street’s ‘Mr. Risk’: Watch Australia’s Housing Market
Fred Goodwin, a macro strategist at Boston-based State Street, warned on Monday that a steep correction in house prices, while still a low probability, would hobble the ability of Australian banks to raise funds in the bond market given their heavy exposure to mortgages. Such a scenario would choke credit to the wider economy and exacerbate an economic downturn.
His views come as economists from Goldman Sachs GS +1.43% to BNP Paribas BNP.FR +1.09% warn of a growing risk of recession in Australia, a scenario deemed unthinkable even 12 months ago for a country that has enjoyed 21 years of uninterrupted economic expansion.
After 21 years of expansion is a long time on one side of the cycle. How does that make it more unthinkable?

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