The struggling Australian property and stock markets have led to the biggest decline in household wealth in seven years, according to a Bloomberg report. The result highlights the pressure on the Reserve Bank of Australia (RBA) to resume slashing interest rates.
Household wealth dropped 2.1% in the final three months of 2018, the largest decrease since the third quarter of 2011, said the Australian Bureau of Statistics.
Land and property values dropped for a fourth-straight quarter, while pension funds took the brunt of the stock market losses.
“Australia is seeing a reversal of its traditional wealth generation method of gearing up to the limit to buy a house and then inflating away debt with wage rises and property gains. Instead, asset deflation is pushing up debt ratios: despite restricted lending, mortgage debt as a share of residential land and dwellings climbed to 28.3%, a four-year high,” Bloomberg said.
RBA Philip Lowe has been sticking with a neutral stance since last month. This decision was brought about by the concerns insinuating that the sliding wealth will drive households to hold back on spending.
The economy weakened drastically in the second half of last year on the back of weaker consumption, which accounts for nearly 60% of GDP.
Money markets forecast that Lowe will be easing before long and are pricing in almost two quarter-point cuts from the current 1.5% cash rate.
