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Corona Cris (WHAT HAPPENS TO PROPERTY? (GFC. EXPERIENCE (US WENT QE:…
Corona Cris
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FIRST ROUND IMPACTS
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Australia's dependence on china for trade, tourism and education
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DOMESTIC IMPACT
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FINANCIAL
AUSSIE
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bad debts were already building in Australia, timing was terrible
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- China effectively shut down. Taking a long time to reactivate the economy
- Crisis then went global. Impact no longer localised to China, but full global economic shutdown.
- This was going to possibly cause a recession in Australia anyway. Direct impact on Australia, and via global trade.
5.Not only are stock markets crashing and global trade shutting down, this will also have serious impacts on our economy. Our vulnerable health system means we have to shut down fully.
- World stock markets already looked expensive, and previous bailouts had created many zombie firms -firms that were barely profitable, but still able to access cheap capital and leverage heavily. The virus was the pin the bubble needed. Created the most vicious crash in history.
- This comes at the worst-possible time for Australia, the supply-side shocks will hurt, and our banks are exposed.
- To understand what happens to property, it's useful to look to the GFC experience. Public policy is key.
- In Australia, house prices boomed on the back of massive interest rate cuts.
- The US hit the lower bound and went QE. Created massive asset price inflation.
- QE has already started. In facts, it's going to be bigger.
- Property is also set to benefit from safe-have flows. Gold has been shunned.
- Oz property will benefit in all these scenarios, and it was already moving off a solid base. Most analysts were predicting double-digit growth. That is probably pushed back a bit now, but the fundamentals are strong.
- But not all property the same. Retreat to residential.