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Do declining household deposits point to recession?

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The Australian economy is facing a potential full-blown recession as indicated by the decline in household deposits held by Australian banks, which raises concerns about the financial stability of households. However, there is optimism for a potential recovery in late 2024 or 2025.

The recent interest rate hikes and soaring inflation rates have instilled caution in consumers, causing them to adopt a more frugal approach to their spending habits.

This has resulted in a noticeable deceleration in household spending and a decrease in deposits. This is having a direct impact on businesses, with those seeking assistance from administrators and insolvency firms, rising by an alarming 50% in the past three months alone.

These developments pose significant concerns for the Reserve Bank of Australia (RBA) as they grapple with the intricate task of addressing these challenges. It is imperative that they carefully assess the repercussions of these circumstances on the overall stability of the Australian economy.

According to the Australian Prudential Regulation Authority (APRA), household deposits across the banking system experienced a significant decline of $7.76 billion in June, representing a drop of 0.56%. This decline marks the sixth consecutive quarterly decrease in the household savings ratio (calculated by dividing household savings by household disposable income), reaching its lowest level in nearly 15 years.

Households now have a savings ratio of less than 3.7%, which is significantly lower than the usual running average of 5%.

To better understand the significance of this decrease, it is important to note that in December 2021, the housing savings ratio stood at a significant 13.5%.

This was primarily due to the substantial savings accumulated by households during the pandemic lockdowns.

The diminishing value of household deposits is a clear indication that more households are feeling the financial strain caused by the monetary policies implemented by the RBA.

As household spending continues to outpace income growth, Australian households are increasingly forced to dip into their savings, as evidenced by the significant increase of 11.5% in interest paid on mortgages during the last quarter.

The decline in the household savings ratio and the necessity to tap into savings to cover expenses highlights the challenges faced by many households in the current economic climate.

This raises concerns about the sustainability of household finances and the potential impact on overall economic stability.

It is essential for the RBA to consider the delayed effects of interest rate hikes on mortgage holders and adopt appropriate measures to alleviate the financial burden on households and businesses.

Consumer sentiment remains negative, which can be attributed to the risks posed to personal finances.

Retail spending has experienced a decline for three consecutive quarters, indicating the cautious approach adopted by consumers.

While Australia lags slightly behind the United States in the global inflation picture, similar dynamics are observed, with sticky services inflation and a robust labour market.

However, Australia’s unique factors, such as minimum wage increases, rent, and utilities frameworks, present additional challenges to the economy.

Even if inflation is brought within the 2-3% target range, prices will remain higher than they were 12 months ago and can be expected to continue rising. This trend is expected to have an ongoing impact on the savings ratio.

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Boeing face delivery delays following guilty criminal charge plea

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Boeing’s deliveries are down after months of controversy, is it because they can’t make the planes, or because airlines right now don’t want them?

Boeing has agreed to plead guilty to a charge of conspiracy to defraud the United States in connection with the investigation into two fatal crashes involving its 737 MAX aircraft.

Boeing reported a significant 27% decrease in deliveries for June compared to the same month last year, possibly attributing the decrease to the companies ongoing controversies.

Aviation expert Geoffrey Thomas joins to discuss. #featured

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Money

Blockchain sparks a transformative influence in Australia

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Professor unveils blockchain’s role in transforming the economy and innovative projects taking place at RMIT University.

Crypto Corner explores the latest market movements, expert insights and the influence of macroeconomic factors on the crypto industry.

Crypto Corner is hosted by Caroline Bowler, CEO of BTC Markets.

In this episode, BTC Markets CEO Caroline Bowler interviews Professor Chris Berg, Director of RMIT Digital3 and Co-Founder of the Blockchain Innovation Hub at RMIT University. They discuss RMIT’s cutting-edge projects and the transformative impact of blockchain technology in Australia.

Professor Berg shares insights into RMIT’s Digital3 philosophy, which combines research, innovation, and collaboration to drive the digital economy. Learn about groundbreaking initiatives in blockchain, cyber security, and AI, and how these disruptive technologies are reshaping business, government, and society.

Discover how RMIT is leading the charge in rethinking and regenerating the way we work through world-class research and tailored education, offering a glimpse into the future of technology and its potential to benefit both the economy and society. #crypto corner

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From $25K to $1.5M in real estate: expert unveils game-changing strategy for investors

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Empower your property investing with these key tips

Wyld Money dives into the world of financial freedom. Whether you’re a seasoned investor or just getting started, join us for actionable tips and tricks to unlock your earning potential, and retire on your own terms.

In this episode, Mark is joined by Dean Fraser, Founder and CEO of BrickFloor. #trending #wyld money

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