According to a Bloomberg report, distressed Australian housing and stock markets led to the largest decline in household wealth in seven years. The result highlights the pressure on the Reserve Bank of Australia (RBA) for it to start lowering its interest rates again.
Household wealth declined 2.1% in the last three months of 2018, the largest decline since the third quarter of 2011, the Australian Bureau of Statistics said.
The value of land and property fell for a fourth consecutive quarter, while pension funds were the most affected by stock market losses.
"Australia is witnessing a reversal of its traditional wealth-generating method of going to the limit to buy a house and then inflating its debt with wage increases and real estate gains. Asset deflation pushes debt ratios up: despite credit restrictions, mortgage debt as a share of residential land and housing climbed to 28.3%, a four-year high, said Bloomberg.
RBA Philip Lowe has remained neutral since last month. This decision was prompted by concerns that slippery wealth would encourage households to limit their spending.
The economy is strongly weakened in the second half of last year due to lower consumption, which accounts for nearly 60% of GDP.
The money markets predict that Lowe will relax soon and expects a reduction of nearly two points from a quarter of the current cash rate of 1.5%.
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