Australia at second-highest risk of home loan defaults in developed world, IMF Outlook finds

Australia is now the second highest risk country in the developed world for loan defaults, worrying new economic data shows.

The International Monetary Fund, an organization focused on global economic growth led by the United Nations, has published its report World economic outlook on Thursday.

The Outlook found that Australians have the second highest chance of defaulting on mortgage payments after 10 consecutive interest rate hikes.

“Economies with high household debt and a large share of debt issued at variable rates are more exposed to higher mortgage payments, with a higher risk of a wave of defaults,” the IMF said in the report.

Australia was beaten only by Canada for the highest default risk, followed by Luxembourg, Norway, Sweden and the Netherlands.

The bad news comes as nearly 900,000 Australians prepare for the expiration of their record-low fixed home loan rates left over from the expansionary monetary policy introduced during the Covid crisis this year.

The dreaded phenomenon has been dubbed by economists the looming “mortgage rock.”

With the official spot rate at 3.6 percent, repayments on some fixed-rate loans could triple overnight thanks to the Reserve Bank of Australia’s (RBA) relentless interest rate hikes announced in May 10 last year. months have passed.

Rising tension from struggling Australians led RBA officials to admit that they had managed the economy during Covid ‘horrible work’.

Speaking at a panel in Melbourne on Wednesday, seven-year RBA board member Ian Harper said the financial impact of Covid left the bank struggling to maintain real stability in the economy while maintaining its inflation targets. The Australian reports.

“Both of these factors led us to be extremely cautious — overly cautious in hindsight about how we set interest rates at the time,” he said.

Shortly before the report, Reserve Bank of Australia officials (above) admitted they have been doing a ‘terrible job’ managing interest rates with nearly 900,000 fixed-payment mortgage holders set to see their bills triple overnight

He admitted to the panel ‘in hindsight … it looks like we did a terrible job’.

“When you look back, you often see things much more clearly than you did at the time,” he said.

However, Australia is not the only country in economic battle with the IMF, which predicts global growth output to fall by 0.1 percent following the collapse of banks in Europe and the US.

“Under the surface, turbulence is mounting and the situation is rather fragile, as the recent spate of banking instability reminded us,” said Pierre-Olivier Gourinchas, IMF economic adviser.

We are therefore entering a dangerous phase in which economic growth remains low by historical standards and financial risks have increased, but inflation has not yet definitively turned the corner.

‘Policy makers will need a steady hand and clear communication more than ever.’

Treasurer Jim Chalmers confirmed from Washington on Thursday morning that the IMF’s outlook was “pretty bleak.”

Treasurer Jim Chalmers (above) confessed that the IMF’s economic outlook was “pretty bleak.”

“We are entering this new period of global economic uncertainty from a position of relative strength,” he said.

“Our unemployment rate is low, we have the beginnings of wage growth and we are also getting very good prices for our exports in world markets.

“It will be a difficult period, our own economy will slow down considerably, but in this environment you would rather be Australia than almost any other country.”

But the treasurer’s reassurance did little to help Australians struggling to meet their repayments. Deputy Governor Michele Bullock said on Wednesday that the RBA’s earlier pledge not to raise rates further until 2024 had been “garbled.”

‘I accept… that the message has become illegible. People cling to a date and even as we raise interest rates, they still want us to set a date when we stop,” she said.

“We should have put up a bit more resistance there.”