Wandering China

An East/West pulse of China's fourth rise from down under.

When China sneezes, Australia catches a cold? China drop to hit house prices hard [The Age]


Australia’s commodity boom and two-track economy anticipating a hard landing?

Standard and Poor’s has released a report that underlines the impact China’s GDP growth has on Australia. If China’s  growth slows to 5% per annum – Australia gets sent into a recession with house prices falling up to 20%. Vera Chaplin, Standard and Poor’s managing director of structured finance in an interview with the Age, “Australian house prices are indirectly linked to the performance of the Chinese economy.”

Also see – S&P Articles Analyze Impact Of China Slowdown On Aust Sectors (Bloomberg, March 8, 2012) and S&P warns on China risk to house prices (Macro Business, March 8, 2012)

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China drop to hit house prices hard
Peter Cai
Source- The Age, published March 9, 2012

THE predicted slowdown in China’s economic boom could cause Australian house prices to plunge by more than 5 per cent this year, according to one of the world’s most influential credit rating agencies.

Standard & Poor’s warned that efforts by the Chinese government to deliberately slow its economy over the next 12 months will have a major impact on Australia’s exports throughout Asia.

Earlier this week, the Chinese government cut its gross domestic product growth target to below 8 per cent for this year. It is the first reduction in that estimate in eight years – a recognition that the country’s rate of growth is not sustainable.

Yesterday Standard & Poor’s released a report titled China Soft Landing Would Moderately Impact Australia’s Housing Market.

”Australian house prices could decline by more than 5 per cent in 2012 if China’s economy experiences a soft landing with GDP growth at about 8 per cent,” it stated.

Vera Chaplin, Standard and Poor’s managing director of structured finance, told The Age: ”Australian house prices are indirectly linked to the performance of the Chinese economy.”

”Australia relies heavily on its Asian trading partners for their insatiable demand for commodities, in particular China,” she said. ”Consequently, a slowdown in China will likely have flow-on effects to employment and house prices in Australia.”

According to the report, if China’s GDP growth slowed to 5 per cent per annum, Australia would be sent into a recession and house prices could fall by as much as 20 per cent.

However, Ms Chaplin told The Age that such a worst-case scenario was not likely.

China’s insatiable demand for resources over the past decade, particularly iron ore and coal, has underpinned Australia’s mining boom.

Australia’s house prices have suffered a prolonged slump, with values falling in every quarter last year across the country.

Melbourne’s prices fell 1.4 per cent in the three months to December last year, but the gloom lifted slightly this month as auction clearance rates rose above 60 per cent for the first time in almost a year.

Any significant drop in house prices could be a major headache for the nation’s banks, which have a large exposure to the sector.

Some lenders could be forced to put more money aside to protect against mortgages turning bad.

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Filed under: Australia, Beijing Consensus, Economics, Finance, Influence, International Relations, Resources, Trade

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