Australian economic growth is projected to reach almost 3 per cent in 2018, but the possibility of plummeting house prices presents the country’s “largest domestic risk”.
That’s according to the Organisation for Economic Co-operation and Development’s (OECD) June Economic Forecast Summary for Australia report, released on Wednesday.
While pointing to general growth, the report warned against visa policies that “compromise” Australia’s ability to employ from the global talent pool and added that “despite macroprudential tightening” house prices continue to grow.
The OECD commented: “The single largest domestic risk remains the possibility of a large fall in house prices, which could reduce household wealth and consumption, and damage the construction sector, leading to significant job losses.”
As the trend of declining resource-sector investment softens and momentum gathers from outside the resource sector, the OECD believes wage and employment is set to grow, bringing consumer spending with it, while tightening labour and product markets should give inflation a boost.
Predicting a rate rise from the Reserve Bank of Australia (RBA) in late 2017, the report said that higher interest rates should “relieve” some of the pressure incurred by the booming housing markets, but added that high household debt and house prices continued to pose “macroeconomic and financial risks”.
To counter the risks posed by potential overheating the OECD called for “enhanced macroprudential policies”.
Earlier this month the chairman of the Australian Prudential Regulation Authority (APRA), Wayne Byres admitted to alarm bells “going off softly” for APRA in regards to the volume of household debt in Australia and the high price of housing.