Risk of economic crisis hitting Australia rises, RBA warns
The risk of Australia facing a financial crisis is growing thanks in part to the wars in Iran and Ukraine, and the AI boom, the Reserve Bank (RBA) has warned.
In its biannual financial stability review published on Thursday, the RBA said while Australia doesn’t face many domestic headwinds economically, the threat of external pressures pushing the country towards financial crisis are rising.
Continuing conflicts in Ukraine and the Middle East are increasing the risk of financial crisis to Australia. AP
“The principal risks are increasingly coming from abroad,” the report said.
“Geopolitical tensions and rapid technological change are adding further complexity to an already uncertain environment,” it added, citing the Middle East and Ukraine wars continuing, as well as uncertainty surrounding the surge of investment in AI.
The conflicts, it said, “continue to disrupt global supply chains, and near-term resolutions to both conflicts are difficult to foresee”.
While investment in AI is currently strong, the RBA warned confidence waning in the technology could be the catalyst for international economic instability that could hit Australia hard, even though the economy is resilient.
One possible trigger could be a shift in sentiment towards the AI investment boom, which is “increasingly fuelled by expectations of sustained rapid earnings growth,” the report said.
It also said the increasing use of AI within Australia could increase the risk of cyber threats; just last week, the Australian government confirmed private Medicare statistics had been accessed by an agent of OpenAI.
“The evolution in the geopolitical and cyber risk landscapes also raises the prospect that opportunistic cyber-attacks on key institutions occur at a moment of generalised financial stress,” the RBA said, noting this could make potential financial crises harder to manage.
The report also warned first home buyers were more likely to be in negative equity, where the amount they owe is worth more than the value of their home.
Few borrowers are in negative equity, but those who are tended to be first home buyers. Thurtell
The RBA said the latest data suggested just one per cent of home owners were estimated to be in negative equity, which includes those who participated in the federal government’s 5 per cent deposit scheme.
This comes on the back of dropping home prices, driven by a range of factors including rising interest rates and recent changes to capital gains and negative gearing tax concessions.
However, the RBA said most borrowers still have healthy buffers.
“Household and business borrowers continue to display a high level of resilience overall, and loan arrears remain low, despite financial pressures picking up this year in response to higher inflation and interest rates,” a summary from the RBA said.
“The strong financial positions of most Australian households and businesses have helped them weather the rise in cost pressures this year.”
Australia has been hit by four interest rate rises this year, the most recent on Tuesday, pushing the official cash rate target to a 15-year-high of 4.60 per cent.
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