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The RBA’s Financial Stability Review published last month stated that during the coronavirus crisis, the commercial banks are playing a central role in absorbing the shocks due to their high capital and liquidity levels built up over recent years. RBA assistant governor Michele Bullock said:” the Australian financial system is strong and well placed to support households and businesses through this difficult period and in the recovery that will follow.”

Here are some key points from the review:

  • The global economy is projected to contract by 3% in 2020. 
  • Around 90% of economies are expected to record a fall in GDP per capita growth. 
  • The Australian economy is expected to contract by 4-6% in 2020, with the most substantial impact in Q1. 
  • The economic growth is expected to bounce back next year.
  • The household sector won’t drive the recovery. 
  • Unemployment will peak at around 10% in Q2 2020 before slowly moving back to about 6%. 
  • Lower-income households, living month-to-month and renting, are most likely to experience financial stress, and this will also indirectly impact landlords.
  • Some risks will spill over into the banking sector. 

The Government has offered substantial support to both households and businesses, underpinned by the $130 billion JobKeeper payment, which will limit the size of unemployment growth and help to restart the economy. 

“There is considerable uncertainty around the trajectory of the economic shock and subsequent recovery. Financial institutions must remain strong so that they are able to support households and businesses during this difficult period and during the recovery once the health crisis has passed.” the RBA warned.

Follow the link to the RBA Financial Stability Review in full: https://www.rba.gov.au/publications/fsr/2020/apr/pdf/financial-stability-review-2020-04.pdf

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