ANNEX I Australia—Economic Vulnerability Assessment
1. Australia’s vulnerability assessment remains broadly unchanged from the last assessment, and the economy remains well placed to manage adverse external shocks.16 While net foreign liabilities remain high, external debt has become more concentrated in private financial corporations with its maturity has shortened, reflecting increased intermediation of flows by banks. The foreign currency component of external debt has risen, although the associated currency risk is mitigated through substantial hedging. Corporate and banking sector balance sheets remain strong, and they have proven to be resilient to large swings in exchange and interest rates in the recent past. Although household balance sheets have expanded in recent years, net worth is comparatively high, and households have proved resilient to past interest rate swings. Housing remains the biggest household asset, and housing debt, which has risen rapidly in the last few years, is the major household liability and a major asset of the banking system. With higher indebtedness and given a rapid rise in housing prices over the past few years, households could be at risk to a major price correction (especially in the investor housing segment of the market), and there could be spillover effects on the banking system.