Sliding property values disrupt the economy

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The drastic downturn in the property market has become a “significant uncertainty,” according to the Reserve Bank of Australia (RBA).

The central bank, in its quarterly update of forecasts, looked into the factors impacting the outlook amid a dimming situation here and abroad, according to a report by Bloomberg.

“The board has paid close attention to developments in the housing market and the implications that lower prices might have for construction activity and households’ spending decisions. The board has also considered how the prospects for consumption growth would be affected if household income growth does not pick up,” RBA said in a statement.

The central bank’s economic growth forecast for the year to June dropped to 2.5% from 3.25%, while for the next 12 months, the predicted figure dropped by half a percentage point.

The report also disclosed that the chances of an interest-rate cut or increase are now “more evenly balanced.” The labour market is still a source of strength, but a weaker data, especially from the weakening home market, caused the central bank to adjust its stance.

The statistics bureau’s recent data showing the drop in consumption growth for the past three years caused the consumption growth forecast for the period to decline from 3% to 2.75%.

The central bank, though, still welcomes the idea of a stronger labour market driving faster wage growth and a pickup in inflation to within the 2% to 3% target range.

The forecasts reveal core inflation hitting 2% at the end of this year and headline inflation reaching 2% in mid-2020. Headline inflation is predicted to dwindle to 1.25% in the year through June because of cheaper oil prices.

The RBA also acknowledged the rising number of factors that could disturb its central scenario. Downside risks to the global outlook, for instance, have increased. “[Trade tensions] are beginning to affect the level and pattern of trade,” the central bank said.

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