A Reserve Bank report has again highlighted how different Australia’s experience of the financial crisis has been from other developed nations.
But while the report’s assessment of the Australian economy is glowing, it also says there are a range of international risks still threatening global financial stability.
The RBA has again highlighted the impact of stimulus – both the Federal Government’s fiscal stimulus and the bank’s own interest rate cuts.
Figures from the bank and Bureau of Statistics show employee wages fell 2.6 per cent in real terms last year as working hours were cut and wage rates stagnated.
However the report shows that government and RBA largesse more than compensated.
“Disposable incomes were boosted by accommodative fiscal and monetary policy settings,” the report noted.
“As a result, total disposable income per household increased by 3.5 per cent in real terms, and 6.6 per cent in nominal terms, over the same period.”
The recovery in the second half of 2009 has had the greatest positive effects on households with high levels of assets.
The RBA report says net worth per household increased by 11 per cent in 2009, driven largely by a 10 per cent increase in house prices which make up around 60 per cent of the nation’s aggregate household assets.
The news is perhaps not so good for younger people who have suffered from the highest rates of unemployment during the financial crisis and tend not to own a house outright.
Younger people have also benefited least from the 30 per cent recovery in share prices last year, which has given the greatest boost to those with the largest superannuation balances.
The Reserve Bank has also acknowledged the negative impact of its historically low interest rates on people with large bank savings, a group comprising many self-funded retirees.
“Lower rates would have put downward pressure on the incomes of those households holding more interest-bearing assets than liabilities,” the report said.
The overall improvement in household finances has also tempted more households into greater debt.
The Reserve Bank figures show growth in borrowing accelerated to an annualised rate of 8.3 per cent in the six months to January 2010 compared with 4.7 per cent in the six months to January 2009.
Most of that increase has been driven by a 10 per cent per annum growth in the amount of home loans, although credit card debt has started to rise again after remaining broadly flat in 2008 and the first half of 2009.
Despite this burgeoning debt, the Reserve Bank says current estimates are of about 27,000 households nationwide more than 90 days in arrears on their home loan repayments, only slightly higher than the estimated 23,000 at the end of 2008.
The corporate sector also recovered in the second half of last year.
The Reserve Bank says the profits of Australia’s 200 largest listed companies were around 20 per cent higher in the second half of last year compared with the first half.
But profits remained 15 per cent below levels seen in the second half of 2008.
Outside Australia, however, the news is not so rosy.
The Reserve Bank says there are still concerns about the level of bad debts in the US.
“The rise in charge-offs for business loans has been similar to recent downturns, but charge-offs for household loans are well above the peaks of the past 20 years,” the RBA’s report noted.
It also notes that business loan write-offs in the UK and Europe increased last year.
Globally, the bank says, the default rate on corporate “speculative-grade” debt rose above recent peaks to the highest level since the Great Depression.
The good news, says the RBA, is that the 40 per cent fall in US and UK commercial property prices appears to have bottomed out. The bad news is that the rate of loan defaults generally remains high for a number of years after the crash in prices.
The situation of US housing finance is no better, with around 8 per cent of American home loans classified as “non-performing”.
The RBA says this high default rate is likely to result in further write-offs for American, British and European banks.
It also says the sovereign debt crisis in Greece and the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries poses risks to financial stability.
In contrast, the RBA’s main concern with developing economies is the emergence of asset prices bubbles of a similar kind to those that burst in the developed economies over the past three years with disastrous results.
Lending growth in China was running at 27 per cent for the year to February (compare that to what is considered a strong 8.3 per cent in Australia).
The bank says China’s recent moves to tighten lending standards are slowing the rate of loan growth, but it will be hoping the lending is being reined in before too many asset price bubbles have been formed.