Westpac is on a real downer: predicting a serious downturn

Record high household debt levels are not sustainable, warns a leading bank economist.

At half a trillion dollars, housing and personal debt has hit 162 percent of the average household’s annual disposable income – higher than levels before the global financial crisis.

Westpac Chief Economist Dominick Stephens told Nine to Noon the decline in dairy prices was hurting the regions, but the downturn following the end of the Canterbury rebuild would be more severe than most people were prepared for.

The rebuild played a huge role in the “rock star economy” between 2012 and 2014, with the international reinsurance industry dropping $20 billion on New Zealand and the government pumping in another $10b.

As that money dried up, some business owners could find their businesses were not as robust as they thought, Mr Stephens said.

What was less certain was when the “borrow and spend” dynamic – fed by skyrocketing houseprices – would come to an end.

But either an interest rate hike or rising unemployment, together with falling migration, would spell “the end of the party”, Mr Stephens said.

“GDP could slow to not much above one percent, unemployment will rise and house price growth will slow or reverse.

“And that’s quite different to what the Treasury forecast was saying just a couple of weeks ago,” he said.

If house prices flat-lined or even fell, those who bought at the peak of the market would be saddled with negative equity – owing more than their property was now worth, as happened in 2008.

Earlier this week Westpac was the first to withdraw from lending money to non-resident people with non-New Zealand incomes.   Now they’re saying Treasury have gotten it all wrong, and the economy is precariously balanced.

 

– Dominick Stephens via Nine to Noon, RNZ


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