Global fund manager BlackRock says Australian households battered by low wages and high debt will be the source of the biggest headwinds to hit the national economy next year.
With Aussie households mired in a low income growth cycle, a material split between business conditions and consumer confidence is both unsurprising and problematic for the economic outlook, says BlackRock vice-president and portfolio manager for Multi-Asset Strategies Group, Australia, Ron Montgomery.
"It's not surprising businesses are more buoyant than their consumers when so much of the debt that Australian households have taken on is really being leveraged into housing prices," Mr Montgomery said.
Mr Montgomery said that while BlackRock has "a reasonably sanguine" view on house prices, the chain linking those prices to household debt, plus the low levels of wage growth and confidence helps explain the more "restrained and moderated" Australian consumer.
"Businesses are reasonably confident and we have, pleasingly, seen that convert into business investment outside mining. But the challenge will be whether a restrained household sector drags that outlook down," Mr Montgomery said.
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BlackRock, the world's biggest fund manager with more than six trillion dollars worth of assets under management, expects households to also be smacked by higher government prices in the form of taxes, energy and health costs that will keep a further check on disposable incomes.
And, Australian households will remain a drag on gross domestic product in the near-term, BlackRock says, until under-employment is rooted out.
Until then, wage growth - with the confidence, spending and inflation that it brings - will remain painfully muted.
"There's still significant excess capacity or under-utilisation and we do think that holds the key to wage growth which, from these levels, should pick up but it's likely to be gradual and reasonably restrained," Mr Montgomery said.
