Pondering the Probability of Echo-Crises: The SCANNZ economies (Sweden, Canada, Australia, Norway, New Zealand) share an interesting set of common features e.g. small open economies, exposure to commodities, have their own currency, independent central bank, and of course they all have overvalued housing markets. And these commonalities are important…
Because of their sensitivity to commodities, the central banks of the SCANNZ economies cut interest rates during the 2014-16 commodity crunch – which drove their housing markets higher. Then of course, 2019/20 saw another wave of rate cuts and another wave of house price appreciation… and left these economies with a significant vulnerability and sensitivity to a significant increase in borrowing costs in the form of record high housing market valuations.
The problem is this risk-scenario appears to be exactly what is getting underway right now, with rate-hike lift-offs spreading and bond yields up substantially off the lows. We probably don’t see ‘systemic stress’ like what happened in Europe with the “PIIGS economies” during the sovereign debt crisis (which was basically an echo-crisis of 2008), but you could easily see *simultaneous* stress across the SCANNZ economies if a similar kind of echo-crisis were to be triggered by bursting housing bubbles.
Key point: Expensive housing markets leaves the SCANNZ at risk of an echo-crisis.
NOTE: this post first appeared on our NEW Substack: https://topdowncharts.substack.com/
Best regards,
Callum Thomas
Head of Research and Founder of Topdown Charts
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