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June 2014
The Rise in Household Saving
This article investigates household saving behaviour in Australia and the drivers behind the sharp rise in saving that occurred in the late 2000s after an extended period of decline. Saving behaviour is important as, among other things, it influences household consumption, which accounts for a little over half of GDP. The rise in household saving appears to have been underpinned by precautionary motives, a reduction in expected future income gains for some types of households and an effort to rebuild wealth after the global financial crisis. Also, the long transition to higher levels of indebtedness may have run its course over this period, including perhaps because of a change in attitudes to debt. The ageing of the population does not appear to have played a significant role in recent changes in the saving ratio, although it may place downward pressure on saving over the years ahead.
Foreign Investment in Residential Real Estate
The available data, while incomplete, suggest that for much of the past decade or so approvals granted for foreign investment in the residential sector have remained around 5–10 per cent of the value of dwelling turnover in Australia, and perhaps half that share of the total number of dwellings turned over. The actual level of foreign purchases of dwellings has been significantly lower. Foreign purchases appear to be most concentrated in new rather than established dwellings, in higher- rather than lower-priced dwellings, in medium- and high-density dwellings rather than detached dwellings, and in inner-city areas of Sydney and Melbourne rather than other locations.
Why Has the Net Income Deficit Narrowed?
Between late 2010 and early 2013, Australia's net income deficit narrowed to its lowest point since the early 1990s. This article examines the reasons for this narrowing and finds that it was mainly due to declines in the average yields paid by Australian entities on their foreign debt and equity liabilities. The lower average yield paid on foreign debt liabilities reflects a combination of declines in Australian interest rates and an increase in the share of Australia's foreign debt attributable to the Australian Government, which pays a lower rate of interest than private sector borrowers. The decline in the average yield paid on foreign equity liabilities was largely due to declining profits for Australian resource sector firms over the period in question, as these firms have a relatively high degree of foreign ownership.
Infrastructure Investment in China
Infrastructure investment in China has increased significantly in recent decades and has been a significant driver of economic growth and improved standards of living. Nonetheless, the level of infrastructure in China remains below that in developed countries, suggesting that the growth of infrastructure investment is likely to remain strong for some time. This outlook has implications for Australian commodity exports, as infrastructure investment is intensive in its use of steel, which in turn relies on iron ore and coking coal as inputs. While infrastructure investment in China is not without its risks, these may be mitigated to some extent by reforms proposed by the authorities, such as increasing the private sector's participation in the allocation, execution and financing of this investment.
Banking Fees in Australia
The Reserve Bank has conducted a survey on bank fees each year since 1997. The results of the most recent survey suggest that banks' fee income from both households and businesses rose moderately in 2013. However, deposit and loan fees have declined as a ratio to the outstanding values of deposits and assets, respectively.
Cash Use in Australia
This article uses results from the 2013 Survey of Consumers' Use of Payment Methods and regression analysis to examine trends in cash use in Australia. The results show that cash remained the most common form of payment, though its use relative to other payment methods has declined over recent years. Older participants were more likely to use cash than younger participants and all participants were more likely to use cash for low-value transactions relative to other payment methods. In addition, participants were asked about their holdings of banknotes in their ‘wallet’ (i.e. on their person) and elsewhere, with the results suggesting that cash – particularly high-value denominations – was being used as a store of value and not just for transactional purposes.
The Introduction of Same-day Settlement of Direct Entry Obligations in Australia
In November 2013, the Reserve Bank introduced changes to its Reserve Bank Information and Transfer System (RITS) to allow the same-day settlement of non-government direct entry obligations. This outcome met one of the objectives set by the Payments System Board in its June 2012 Strategic Review of Innovation in the Payments System. The changes provide a platform for greater efficiency and innovation in Australia's payments system, potentially allowing faster access to funds, and reducing the key risks associated with deferred settlement. The support of the Australian Payments Clearing Association (APCA) and the banking industry was critical in the successful development and implementation of the new settlement arrangements. The transition to the new arrangements has progressed smoothly, with the vast bulk of customers' direct entry transactions, around $16.5 billion, now settled on a same-day basis each business day.
Cross-border Capital Flows since the Global Financial Crisis
Global gross capital flows remain well below their peak before the global financial crisis, which was reached after a period of unusual expansion. Much of the decline can be attributed to a reduced flow of lending by banks – particularly to, from and within the euro area – as banks have unwound many of the cross-border positions they built up before the crisis. Capital inflows to some economies, however, are now larger than they were before the crisis. The international regulatory response to the crisis aims to address some of the risks associated with increased capital flows, while maintaining the benefits of an integrated financial system.
The graphs in the Bulletin were generated using Mathematica.
ISSN 0725–0320 (Print)
ISSN 1837-7211 (Online)