Property market on track for soft landing in 2019, but regulators should be prepared incase of hard landing: OECD
Australia's financial and banking regulators should be prepared for a hard landing in the housing market, according to the Organisation for Economic Co-operation and Development.
It says the housing market poses a risk to the nation's economic growth going forward.
But the Paris-based group said in a report released on Monday that the market is on track for a soft landing.
"Financial supervisors and bank regulators should be prepared in the event of a hard landing in the housing market," the report states.
The agency suggests Australia's long span of economic growth - 27 consecutive years - was likely to continue.
"Life is good, with high levels of well being, including health, and education," the group said in its latest Australian economic survey.
"Robust economic growth is set to continue," it said.
"High indebtedness of households remains a risk.
"Unexpectedly large corrections in house prices could reduce household wealth and consumption, and impact the construction sector.
"New capacity coming on stream in the resource sector will support exports and business investment will pick up.
"Growth of wages and prices will rise gradually, while the unemployment rate will edge lower.
"Output growth will moderate slightly in 2020 as capacity constraints tighten, export-market growth slows and households become less willing to draw down savings to fuel consumption.
"Monetary policy tightening will be required as the pick-up in wages and prices gathers pace.
"Risks from the housing market and high household indebtedness warrant continued vigilance.
"The government is projected to reach a budget surplus in 2019, giving sufficient room to support activity and protect the incomes of vulnerable groups in the event of an unexpected downturn."
Regulators should also turn their attention to ensuring accountability, transparency and competition among financial institutions after the banking royal commission, the OECD has recommended.
Aside from the housing market, the agency said risks to the growth outlook include uncertainty around export demand - due to rebalancing in China - and the potential escalation of global trade tensions.
Challenges in boosting productivity - which involves increasing the value derived from the work and resources put into the economy - are also a risk.
The OECD, which has 36 member nations, has called for interest rates to be gradually lifted as growth continues and inflation slowly rises.
The Reserve Bank of Australia has kept the official cash rate at its record low of 1.5 per cent since August 2016.
The OECD said if the economy stays robust and avoided a downturn, the RBA should raise the overnight cash rate.