Australian Household Financial Conditions Deteriorate

Post by NeilMc on March 19, 2010 · Under Australian Economy, Business News · Comment

A new report suggests that whilst the Australian economy continues to recover, and will most likely grow further during 2010, Australian household finances are deteriorating to the point that Australia may experience a W shaped economic recovery.

The report, authored by The Melbourne Institute suggests that the domestic economy is set to expand by 0.8 per cent during the March quarter, and by 0.6 per cent during the June, September and December quarters.

Despite the growth in the overall economy predicted by the report, it also suggests that its household financial conditions index declined 16.6 per cent to 28.8 index points during the March quarter.

It was the first fall in the index after four consecutive quarters of improvement.

14.4 per cent of households polled defined themselves as being financially stressed and over half of those households are employed.

Ironically, households with income exceeding $80,000 are the most financially stressed amongst all income groups.

The report suggested that the reason for the deterioration was the increased burden of servicing household debt, in particular mortgage debt.

“The Reserve Bank is now in a difficult position, rises in house prices and associated rises in consumer debt seem to warrant a swift tightening in monetary policy but if the tightening is too fast it may choke-off business investment that is only now starting to recover. This means that if the RBA gets policy wrong, Australia may experience a W-shaped recovery.” the Melbourne Institute’s Ada Claus said in a statement on Friday.

Most Australian states experience deterioration in household financial conditions, with Western Australia experiencing the largest decline at minus 17.7 per cent.

The only state that showed improved financial conditions was South Australia, which improved by 7.8 per cent.

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