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.22 Net foreign liabilities remain high relative to other advanced economies, mainly reflecting private sector borrowing, and the external debt has become more concentrated in private financial corporations due to increased intermediation of flows by banks. Despite the large share of foreign currency denominated debt, the currency risk is mitigated through extensive 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 years. Housing prices have risen substantially in recent years, but analyses using microeconomic data indicate that a relatively small share of households are potentially vulnerable to a significant fall in housing prices, and the banks are sufficiently well capitalized to withstand a substantial housing market correction.