Australia | Mar 04 2022
Weekly Broker Wrap, In Brief: Economic impacts of Russia-Ukraine conflict; financial stress remains low; house prices to moderate.
-War in Ukraine and Russia sanctions will drag on global economic activity
-Financial stress for Australian households remains well below average
-House prices expected to fall with RBA rate hike seen as a cycle-turning event
By Danielle Austin
Russia-Ukraine conflict drags on global gross domestic product
Oxford Economics is predicting the Russia-Ukraine conflict will translate into a loss of global economic growth by no more than -0.2% (GDP) this year but warns the impact on different regions will vary.
Unsurprisingly, Russia and Ukraine are expected to be exposed to the most dramatic shifts. Poland and Turkey, given stronger trade links to Russia, have been identified as being at heightened risk of impacts of the conflict, and wider Europe can also expect significant impact to flow through. Less exposed are both the US and China, with only modest trade links to Russia.
Russia itself could be facing a GDP decline of -4-6% as the nation’s financial markets struggle under the heavy pressure of international sanctions. In the past week since the Russian army crossed the Ukrainian border:
-Russian stocks have declined -20% (up to the stock exchange being shut down this week)
-Russian rouble has declined -19% to the US dollar
-The Russian Central Bank has doubled interest rates to 20%
Oxford Economics expects economic consequences will be felt via financial market effects, commodity pricing shifts and economy and trade impacts.
Given Russia’s role as a key energy provider in Europe, the conflict has already triggered a significant 20% gas price surge across the continent. Commodities likely to face supply disruption, including oil, wheat and copper, have already been impacted by early price surges.
For obvious reasons, any impact on war-torn Ukraine will be a lot worse, with Oxford Economics modeling suggesting a double-digit GDP decline should be expected.
Financial stress remains below average but saving proves difficult
Household financial stress continues to trend well below average according to National Australia Bank’s quarterly survey into Australian wellbeing, with the December-quarter survey reporting a moderate stress index reading of 40.3 points, down from 40.5 points in the previous quarter and well below the survey average of 44.5 points.
Australians who thought they were worse off financially in the fourth quarter slightly exceeded Australians who thought they were better off, with the balance between the two having improved on the third quarter.
The biggest drivers of financial stress are not having sufficient finances for retirement, providing for the family’s future and non-essentials, but the level of stress of each of these drivers declined on the previous period.
Buy Now Pay Later (BNPL) loan stress also rose and was much higher for men and for those in the lowest income group.
As national household savings declined in the period, the survey also identified challenges to personal finances for the first time. One in four Australians intended to grow household savings in the quarter, but data suggested dipping into savings was the biggest challenge facing Australians trying to save, while impulse spending was the second largest challenge.
25% of respondents expressed that spending on debt repayments, bills and everyday expenses was the biggest hindrance to savings efforts, while 20% attributed difficulty in managing expenses to lower savings.
With data collected in late November and early December, results were influenced by the easing of lockdowns and covid-related restrictions in many regions. National Bank’s Wellbeing Index showed the wellbeing of Australians at the close of 2021 was at its highest in over two years, and anxiety improved to levels not seen since mid-2019.
Australian housing market moderates
A solid read-through on the Australian housing market is proving difficult, but one thing the market can agree on is that an imminent RBA cash rate hike will be a catalyst for a fall in house prices.
Following house prices rising 21% in 2021 market analysts point to signs of market softening in late-2021, but some market indicators have rebounded since the beginning of the year making a clear outlook difficult. Turnover remains high, sales volumes are up 15% year-on-year and new listing volumes have lifted in recent weeks.
House prices appear to have grown between only 0.3-0.6% month-on-month in February, marking the lowest recorded monthly growth pace since October 2020, and growth appears to have shifted toward more affordable markets.
While the expensive capital city markets of Melbourne and Sydney reported a material slowing of house price growth, with growth flat and declining -0.1% month-on-month respectively, affordable capitals including Brisbane and Adelaide and regional markets have better sustained growth rates, with Brisbane reporting monthly growth of 1.8%.
Although annual house price growth remains high at 19.2%, growth moderation in coming months is anticipated to see annual growth dip significantly. Jarden is anticipating a slower 3-5% house price growth rate to continue through 2022, before likely rate hikes drive a -5% decline in 2023, followed up with further declines in 2024.
Morgan Stanley expects not only a moderation of growth, but a defined turn in the cycle in the second half of the year following a cash rate rise leading to a house price decline of -5% by the end of 2022.
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