Australia is still in a strong financial position, but the residential property market is one of its few weaknesses, according to the latest report from the Organisation for Economic Development and Co-operation, which has forecast higher growth rates for the country.
The report should give hope to businesses and consumers, fearful about the current financial situation in Europe, that Australia will be able to withstand any fallout from the Greek crisis.
Treasurer Wayne Swan has already jumped on the opportunity to use the report as a testament for the Federal Government’s policy.
“Australia’s economic fundamentals remain strong, with our economy expected to grow more strongly than every single major advanced economy over the next two years,” Treasurer Wayne Swan said in statement.
The OECD Economic Outlook said Australia will grow at 3.1% this year, while the United States will grow at just 2.4%, Britain at 0.5%, while Italy and Greece will continue to fall into recessions. The report also said this pace will likely continue for years to come, ensuring Australia’s strong position in the mid-term.
Forecasts up until 2050 put Australia’s growth rate as the highest in the developed world, while China is expected to take over from the United States as the world’s largest economy in 2017.
But it also said real estate prices are under threat from the dollar, saying the “persistently high exchange rate…[is] generating substantial uncertainties that could weigh on employment, confidence and growth, with potential negative spill over on house prices”.
It also noted that house prices in Australia, along with those in some other countries, including Canada and France, are “very high relative to rents and incomes”.
This could point to “possible price corrections at some point or further price corrections in those countries where house prices are already declining”.
Prices in Australia have already declining over the past year. But experts say these comments may be just a little bit late.
“There’s always a risk that you could see more price declines, so the OECD has made fair comment here. But it’s lagged a little bit,” SQM Research managing director Louis Christopher told SmartCompany this morning.
“They could have said that about 12 months ago compared to the environment we’re in right now, and that’s the problem with these large economic organisations such as the OECD and IMF. When they come up with these big reports, they’re a bit behind the times.”
Christopher acknowledges the higher dollar will continue to impact the market – especially on tourism, which is connected to the residential market – but says the current environment is a bit beyond this report.