World Economy

From dealing with trade tensions, the world now faces an even bigger problem as the new coronavirus spreads globally. So forget about earlier expectations of a pickup in global GDP growth this year. China’s shutdown of much of its economic activity had sent a shudder through the world economy.

Now, as other major economies such as the US try to slow the spread of the virus – and as financial markets react – a global recession is becoming increasingly likely.

Health: poor

Australian Economy

The impacts of the bushfires and now the coronavirus outbreak have hit the Australian economy with a double whammy. Economists expect the economy to go into recession in the first half of 2020 as fears over the outbreak battered Australia’s financial markets.

To help cushion the economy, the Reserve Bank cut the cash rate to a record low of 0.50% in March. Economists expect the bank to bring the cash rate to 0.25% within the first half of the year.

Health: poor

Property

Things are nearly back to normal in Australia’s housing market, with signs of a potential return to boom times. A full recovery could come as early as April 2020 as housing prices rebound in capital cities, led by Sydney’s and Melbourne’s double-digit growth rates.

Housing loan commitments have also picked up, but affordability has declined in most of Australia. Housing affordability fell 2% in the last quarter of 2019, a trend that’s likely to continue in 2020.

Health: good

Interest Rates

Thanks to the all-time low cash rate, mortgagors and businesses are enjoying lower lending rates. But as the coronavirus roils global financial markets, economists warn this could push up banks’ funding costs and as a result affect interest rates.

When this happens the Reserve Bank is expected to step in and restore confidence by further easing monetary policy.

Health: good

Mortgage Broking Industry

The mortgage broking industry’s share of the home loan market fell from a high of nearly 60% in the first quarter of 2019 to 55.3% in the last three months of the year.

Still, the industry continues to enjoy a healthy level of customer trust. And as buyers flock back to the market to take advantage of the low rates, 2020 is looking to be a good year for mortgage brokers, barring any major impact from a recession.

Health: good

Banking Indicators

Banks are facing pressures on their net interest margins, which have been declining since 2018. Their move to pass the full RBA cut in March on to their mortgage customers could add further pressure on their interest margins.

Among the major banks, subdued lending conditions and competition from non-banks and other lenders contributed to a fall in their collective share of the home loan market in FY2019. Their business lending will likely remain soft – at least for the first half of 2020 – as businesses face challenging economic conditions.

Health: normal

Government and External Sector

Australia’s current account remained in surplus for a third consecutive quarter in the last three months of 2019. But the account shrank from a revised $6.5 billion in the previous quarter to $955 million as bulk commodity prices fell.

Export volumes remained steady in 2019 but could take a hit from a slowdown in China’s economic activity.

Health: good