Global economy improves but risks remain: RBA
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The news: The Reserve Bank’s latest Financial Stability Review shows improvements in the global economy, but elevated risks remain that could spill over into the Australian financial system.
The context: The risks include weakness in the Chinese property sector, a deterioration in global commercial real estate markets, worse-than-expected macroeconomic outcomes and threats from cyber-attacks, climate change and geopolitics.
While banks expect mortgage arrears to tick up higher, the review found most Australian businesses and households would be able to withstand interest rates remaining for higher than expected should inflation take longer to bring back to target.
The RBA said the year ahead would be challenging, though, with unemployment expected to climb higher and slower economic growth to affect businesses.
Despite the S&P 500 hitting a record high this week, the review warned that current pricing in financial markets is predicated on “expectations of a soft landing in the global economy”. This leaves the market vulnerable to negative shocks.
What they said: “Most mortgagors and larger businesses would be able to service their debts even if pressure on their finances remained elevated for a more extended period. Accordingly, the risks to financial stability under the higher-for-longer scenario remain limited,” the Financial Stability Review said.
The source: RBA
