Immigrants saved Australia from Financial Crisis

An article by George Megalogenis provides a thought-provoking explanation for why Australia survived the Global Financial Crisis. In America, England, Spain, and so many other developed countries, it was the crash in house prices that triggered the collapse of the banks. But, as GM says, in his final two years as Prime Minister, John Howard initiated a flood of mainly Asian immigrants, such that Australia had the world's fastest population growth rate when the financial crisis hit in 2008.
"Take Howard's immigrants out of the equation and a recession would have been more likely. One of the things that set our economy apart from those of the United States and the United Kingdom was the behaviour of the property market. While their house prices collapsed - creating a vicious cycle of mortgage stress, reduced spending, and job losses - large scale immigration kept our house prices rising because supply was lagging demand. Ordinarily shortages would be read as a case of market failure, and they are. But they also played a valuable role in maintaining the confidence of Australian households to keep consuming while the rest of the developed world turned turtle."

Big Four Aus Banks Credit Rating downgraded

Moody's last night downgraded the AA1 rating of Australia's big four banks to AA2, "relecting our view of the Australian banking system's structural sensitivity to conditions in wholesaly funding markets," according to Moody's senior vice-president Patrick Winsbury.
Australian banks are amongst the biggest users of wholesale funding, meaning they borrow huge amounts of money from abroad to make up the shortfall between what Australians deposit and what they want to borrow.
The subdued outlook for credit has reduced their funding needs, and the banks are taking steps to reduce reliance on wholesale funding.

Government Population Strategy

The development group Urban Taskforce’s chief executive, Aaron Gadiel, says the Federal Government's sustainable population strategy released last Friday "avoids imposing any damaging population caps on the nation or on the major cities. We're pleased that the Federal Government has walked away from the notion that some parts of Australia are at carrying capacity".

However this seems rather to distort what the strategy actually says. The Federal Government focuses on boosting growth in regional areas and away from the outer suburbs of capital cities.
The report - Sustainable Australia, Sustainable Communities - does not set a population target, saying adopting one would limit the Government's ability to use the migration program to deal with skills gaps and labour shortages. However Population Minister Tony Burke says the strategy's focus is on where people live rather than setting an arbitrary figure for the size of the population.
Mr Burke says there are natural caps on growth such as the infrastructure and water-supply limits.
"There are natural limits to growth in Australia - it will never be a case of free-for-all," he said.
The report says a balance must be struck between the principles of economic sustainability, making communities livable and environmental sustainability.
Mr Burke says the Government is aiming to encourage business hubs in the outer suburbs and regional areas so people can find employment closer to home.

House Prices "will be flat for ten years".

According to Jessica Darnbrough in the latest Real Estate Business magazine:

"Property price growth will be subdued for the next 10 years," an industry commentator has claimed. Speaking to Real Estate Business, BIS Shrapnel’s managing director Robert Mellor said property prices will grow by no more than 5 per cent each year.
“These are not boom conditions,” he said. “People have to get used to the fact that over the next 5 to 10 years, strong growth will be in the order of five per cent, while weaker years will see just 2 to 3 per cent growth.”
Mr Mellor said Australia is unlikely to see the rapid growth of previous years again anytime soon. “That growth was stimulated by various incentives, and as we are unlikely to see incentives return, we won’t see extraordinary growth return either."

Rate Rises begin to bite

The Herald Sun reports that:
"ANZ Banking Group boss Mike Smith has revealed his growing concern at how rising interest rates are affecting the ability of some consumers to repay their loans.
He said yesterday poor credit quality was a concern because people were not paying off their credit cards.
Mr Smith's comments on ABC television follow Westpac chief Gail Kelly who, earlier last week, acknowledged a rise in consumer arrears, but said it was not at a level to cause the bank a loss.
Mr Smith said poor credit quality at this time was strange because it normally occurred during periods of rising unemployment.
He said it now appeared to be seasonally related, noting a little bit of a situation where people were going on holidays and not repaying the monthly debt on their credit cards.
"But I think that interest rates are beginning to hurt a little bit now, so the recent rises are beginning to bite," he said, adding that the Queensland floods had contributed to the issue."

Regarding exchange rates, Mr Smith said the Aussie dollar would continue to rise.
"I think we will see it move through $1.10 and get even stronger than that," he said.
"I can't see anything that will knock it off the perch because it's not only the strong Australian dollar, it's also the weak US dollar.
"When you think about what is happening in the States, I can't see them increasing rates for at least 18 months."