RBA warns worst impacts of pandemic might be just around the corner
The worst impacts of the pandemic may be just around the corner after the Reserve Bank warned today of a looming surge in business failures, a fall in house prices and increased household financial stress.
Australia's economy remained in positive territory, just in the national accountes figures released today(Photo: AAP Image/Joel Carrett)
However, it said the Australian financial system had the strength to withstand the downturn and support the economic recovery.
In its Financial Stability Review released today, the RBA said the income support, rent relief and loan payment deferrals had helped maintain cash flow despite the sharp reduction in revenue experienced by many businesses.
Also, the continued availability of debt funding had enabled large businesses to shore up their balance sheets.
“However, business failures will rise substantially as loan repayment deferrals and income support come to an end,” the RBA said.
“Business failures have flow-on effects to their creditors, both financial institutions and other businesses, and their employees.
“It is likely that many businesses will not fully recover.”
It warned that household financial stress had increased and was likely to increase further despite a rise in income from stimulus packages, which had offset falling wages.
“However, an overwhelming majority of households remain well placed to service their debt,” the RBA said.
But it was also likely that there would be an increase in the number of households that fall behind on their mortgages and at least 10 to 15 per cent of businesses in the hardest hit industries did not have enough cash on hand to meet their monthly expenses.
“Survey evidence indicates that about one quarter of small businesses currently receiving income support would close if the measures were removed now, before an improvement in trading conditions,” the RBA said
The bank said there was an increased risk of further falls in house prices because of immigration being halted during the pandemic as well as rising unemployment.
“Some commercial real estate poses significant risks for lenders and leveraged investors,” the RBA said.
This was evident in shopping centres and offices. However, industrial property had remained strong, in part because of online shopping.
The restructure of the global banking system since the global financial crisis meant that the pandemic shock had been cushioned.
