High levels of household debt and a property market that has “peaked” are likely to weigh down Australian economic growth, says Tribeca Investment Partners.
In its latest update to investors, Tribeca said there is mounting evidence that the housing cycle had reached its peak, pointing to APRA’s recent efforts to “rein in aggressive mortgage lending”.
If APRA’s tightening of mortgage lending standards leads to a drop in house prices and generates negative equity effects, “further downside risk to the economy may emerge”, according to the report.
Tribeca also cited "a heavily indebted household sector" as the primary driver for a slowdown in the Australian economy.
“How this plays out remains uncertain as interest rates are at record lows, preventing much corporate sector stress, and the currency remains a viable source of adjustment,” the report said.
“State governments are effectively recycling stamp duty revenue into road and rail infrastructure, which also provides some offset to activity.”
The gloomy outlook for domestic growth comes off the back of the last financial year, which the report described as a “roller coaster for bond markets” due to the instability Brexit brought followed by the “reflation euphoria” of Trump’s presidential win.
“A lack of follow-through on the political front and some softening inflation data then saw the bond market resume its rally.”