More Needs To Be Done, Says CommSec

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By Chris Shaw

It would be obvious to anyone checking the prices in their share portfolios of late, but as CommSec’s economics team points out, wealth held by Australians in shares, property and other assets has fallen for the third straight quarter and is now down 3.6% over the past year, its biggest fall in more than 17 years.

Australian private sector wealth now totals $5,060.4 billion, with CommSec chief equities economist Craig James estimating the average Australian’s wealth is now equivalent to $237,000, down $12,100 since September of last year. In his view this decline highlights the need for urgent action on the part of the Government to stimulate growth.

He says this because in his view it is wrong to underestimate the impact of the global financial crisis on the Australian economy. While the Government’s package will help, as will lower official interest rates, more will need to be done including a move by the Reserve Bank of Australia to shift rates to a more neutral setting, which suggests an official cash rate of around 5.0% compared to 6.0% now.

Such a move will, in James’s view, help offset the current powerful downward pressure on household spending currently being experienced, as even though household wealth has increased significantly in recent years, there is clearly some pressure being felt in the current environment.

At the same time James notes recent data has highlighted the problems in the housing sector, as vacancies remain near 30-year lows and housing construction numbers are also weak compared to underlying demand. While the lift in the first home buyers grant will help, James suggests more needs to be done as the cost of land and services is still too high and state zoning laws need to be reviewed.

Overall the changing global economic conditions leads James to suggest the Australian economy risks falling from full employment quite quickly, meaning policy also has to change quickly. with further adjustments still required to deal with the current and likely future conditions.

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