(Bloomberg) — The impact of a deeper economic deterioration in China will be felt primarily in Australia through weaker trading and lower risk appetite in financial markets, Australian regulators said in a quarterly statement.
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“A sharp slowdown in China, if it were to materialize, would be transmitted to Australia primarily through trade channels and an increase in risk aversion in global financial markets,” the Council of Financial Regulators said on Monday.
China is the biggest buyer of Australian goods, from iron ore to coal to food, and a windfall from recently increased commodity prices helped Canberra to its first budget surplus in 15 years. If Chinese demand weakens, this would lower prices and reduce Australia’s trade surpluses or even lead to deficits.
The CFR, chaired by the Reserve Bank governor, also said Australian households and businesses had been relatively resilient to interest rate rises and inflation of 4 percentage points, although the impact had been uneven.
“The proportion of borrowers defaulting on their mortgage payments has increased, although from low levels,” it said. “Employment prospects remain the most important factor in household resilience.”
The RBA has described the Australian labor market as tight, with the unemployment rate hovering in a range of 3.4% to 3.7% since June last year, despite interest rate hikes.
The four members of the CFR are the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the RBA.
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