As more of the country gets locked down there’s an economic consequence that will bizarrely see house prices rocket further in Australia.
In just a few days, the zero covid existence that most Australians have enjoyed for the vast majority of the pandemic can be broken. Replaced by lockdowns, uncertainty and everything that goes with it.
According to analysts from the Commonwealth Bank the nation’s economy is expected to contract by 2.7 per cent in the September quarter. To put that into perspective, throughout the entirety of the 1990s recession GDP fell by a total of 1.7 per cent.Source:SuppliedWith Sydney’s lockdown expected to last until mid-November as a base case according to CBA, they have changed their outlook and now expect that the first rate hike by the Reserve Bank won’t come until May 2023.
In February, the Bank of England gave UK banks six months to prepare to implement negative interest rates.While the effectiveness of negative interest rates on boosting economic growth is questionable and a source of significant controversy, it remains the likely next move for central banks when the next crisis does come.
For the Australian economy, a significant slowdown in China could scarcely come at a worst time. According to CBA, up to 300,000 jobs could be lost due to Sydney’s protracted lockdown, leaving Australia an increasingly economically divided nation where some states streak ahead, while others fall behind.
If the RBA was to cut the cash rate to below 0 per cent, it’s likely that this would not only send housing prices further skyrocketing, but likely all the way into a neighbouring galaxy if the economic circumstances were not too dire.If rates headed lower to the lowest level they would probably ever reach, Aussie mortgage holders and homeowners could gain trillions of dollars’ worth of collective equity in their homes.
However, with interest rates at record lows and the possibility of rates going even lower or even negative, that is where we are at.
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