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Australia's Uncertain Rise From Recession

Australia has technically emerged from its recession, with the September quarter showcasing positive economic growth nationally, and the decline in economic activity in Victoria less than what were forecasted the previous month.

The formal forecasts by the Reserve Bank will be revealed next Friday and although the recession is technically over, chief economists are weary about overestimating the recovery with 930,000 people still unemployed.

Although Australia has survived the recession, a bounce back for businesses aren’t on the cards just yet, with speculations that “Business failures will increase even as the economy starts to recover. Business failures are currently much lower than usual because of income support, loan repayment deferrals and temporary insolvency relief. But this can’t last and we expect to see failures rise.”

Commercial property may also be a significant risk, where “prices could experience sharp falls in this environment, putting pressure on investors that had borrowed to invest such property”.

Within the residential property market, it could be seen that Australians could go into “negative equity”, where the value of their property falls below the outstanding balance on their mortgage, if the pandemic-led recessions leads to fall in house prices.

Households won’t be able to make their repayments due to fallen incomes, which would consequently lead to an increase in non-performing loans from the banks. While population growth is also expected to weaken for the next year, this is also another factor that may weaken the housing market, along with price falls which are a consequence of housing investors who decide to sell due to the rising rates of vacancies and decline of rents.

Read the full articles here and here.

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