Bubble Meter and Bank Analysts

time: Citi Australian economists have constructed a bubble meter from five key economic metrics and, for the first time since 2000, it is showing a sustained downturn. "The current deflationary episode is of a similar magnitude to that in 2000, according to Australian Broadcasting Corporation. But it is different to then, global factors are more important this time," noted the bank analysts. "In addition to the correction in mining investment, there is a deflationary income shock as the terms of trade have reversed from record levels and, partly offsetting that, housing construction is booming as the RBA has cut rates to record lows." Photo: Citi measure of bubble risk versus economic growth. Related Story: Off-the-plan apartments carry high risks Map: Australia A large global bank has warned that its "bubble meter" is in bust territory, while ratings agency Moody has said Australia banks face risks from commercial property exposures. Apartment boom both economic saviour and major risk Although a separate report from ratings agency Moody highlights the risks of this property boom that is preventing a bigger deterioration in Australia economy. Settlement risk is the chance of buyers who have put down a deposit for an apartment being unwilling or unable to pay the rest of the purchase price when the building is completed. "The above developments are credit negative to Australian major banks, which after a respite in the years following the global financial crisis, have started to grow their CRE commercial real estate exposures gradually in recent years," Moody noted. Moody points to high office vacancy rates in Perth and Brisbane and growing settlement risks from a potential oversupply of new apartments in Sydney, Melbourne and Brisbane as a risk to the banks that have funded the developments. (news.financializer.com). As reported in the news.