Australian Economy

Resilience, risks and the RBA

Source: RBA Financial Stability Review March 2024.

The RBA’s outlook for businesses is also relatively stable. The Review flags that, though financial stress is rising, broad-based stress across the corporate sector is unlikely given robust business balance sheets and higher than pre-pandemic level cash buffers for most larger listed companies. Most businesses are also reporting profitability around pre-pandemic levels, while the share of businesses with severely overdue trade credits is well below the average from the second half of the 2010s. 

The Review also highlights the strength of Australia’s banking sector, with all our regulated banks having capital buffers significantly larger than their minimum regulatory requirements. Australian non-bank financial institutions are also very stable compared to international equivalents – superannuation funds in Australia, for example, generally operate with low leverage and do not have returns that they are obliged to meet, unlike pension funds. This means that there is little risk of financial services being interrupted, even if the economy was hit by a severe, but plausible, economic downturn.

However, a key risk flagged by the Review comes from overseas. Risks to global financial stability remain significant, including further weakness in the Chinese property sector, deterioration of global commercial real estate markets, and potential volatility in financial asset prices. 

This will be on the RBA’s radar in upcoming Board meetings. The Bank will also be keeping an eye on Australian economic data releases, which have been somewhat mixed recently. Population data was stronger than expected, while retail sales have remained largely flat (with an All Too Well bump in February from Taylor Swift’s Eras tour). 

Labour market data will be particularly important after an unexpected fall in the unemployment rate in February. However, job vacancies fell by 6.1% in the three months to February 2024, supporting the general concensus that the labour market is softening. It’s expected to weaken in the coming months, as elevated levels of migration continue to increase the supply of workers while demand falls, which may put additional pressure on households.

This newsletter was distributed on 3rd April 2024. For any questions/comments on this week’s newsletter, please contact our authors:

This blog was co-authored by Chris Bates, Graduate and Michelle Shi, Senior Economist at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings: 

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