According to a Crestone report, Australia is an "economy in transition" and is dealing with growing risk due to a number of factors that have put the consumer under pressure.
The report, which summarised various topics discussed by a table of panellists at a Crestone Investment Forum, said these factors include a strengthened Australian dollar, an extended housing bull market, higher costs in healthcare, insurance and utilities, and flat wages growth.
Colonial First State Global Asset Management chief economist and forum panellist Stephen Halmarick argued the risks in the housing market had been overstated and that people were looking at gross household debt to income rather than ‘net’ household debt to income.
“Net household debt to income has been flat at around 100 per cent for the last decade,” Mr Halmarick said.
“If rates rise, we could see issues quickly emerge, but [RBA Governor] Phillip Lowe knows this.
“He is not going to put rates up aggressively enough to cause the housing market to blow up.”
According to the report, there was agreement among panellists that the risks in the housing market would be concentrated in “pockets” rather than “being broad-based”.
Mr Halmarick said those in the higher-income bracket would bear the brunt of the risks.
“The top 40 per cent of income earners in Australia have household debt to income of 200 per cent. The bottom 40 per cent have 50 per cent [debt],” he said.
“So, the debt is with high-income earners not low-income earners.”
Mortgage holders were also feeling the squeeze, the report said, with healthcare, insurance and utilities cost rising while wages growth stayed stagnant.
“Consumers have less money to spend elsewhere, which may explain why the economy ex-housing looks soft,” the report said.
Commenting on the stronger Australian dollar, fellow panellist and BT Investment Management head of income and fixed interest Vimal Gor said the impact of an Australian dollar in the range of 65 to 75 cents was “benign”.
“When you hit 80 and above, it becomes problematic and ultimately squeezes the economy,” Mr Gor said.
Ellerston Capital head of global macro Brett Gillespie said he had a “reasonably upbeat view on the Australian economy” and signalled Western Australia was an overlooked sector that was “coming back quite smartly”.
“Western Australia has dragged 1-1.5 per cent off Australian GDP growth in recent times,” Mr Gillespie said.
“We are going to see Western Australia come back as we go into next year. We think housing will take 0.5 per cent off growth next year, but this is more than compensated for by the pick-up in Western Australia.”
