It could take only a modest decline in the growth of China’s economy for Australian property prices to falter, as new research revealed that even a slight slowdown in Chinese growth could send local prices into dangerous territory.
The report, compiled by international finance company Standard & Poor’s, painted a scenario where a soft landing, in which China experiences 8% GDP growth, could see Aussie house prices erode by more than 5% in 2012.
On the other hand, a doomsday scenario where China saw only 5% GDP growth could see Australia sent into a recession, with house prices falling 20%.
Standard & Poor’s analysts Craig Parker and Vera Chaplin predicted that the most likely scenario for China would be a soft landing, saying the effect on Australia was likely to be “muted”.
"Based on this scenario, we expect the Australian economy to continue its moderate growth path and that the performance of the Australian housing market will soften further but not experience a sharp decline given the sound economic outlook.
“In this scenario, we [expect] the unemployment rate to increase marginally and property price decline to continue its current softness," they wrote.
The second-most likely scenario, Chaplin and Parker said, was a "medium" landing in which Chinese GDP growth fell to 7%, shaving 10% of Australian house prices and sending unemployment to 7.2%. The analysts gave this scenario a 25% likelihood of occurring.
The hard landing scenario would see unemployment swell to 11.3%, but S&P said there was only a 10% probability this scenario would come to pass.
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