RBA Warns AI Stock Slump Could Cut Australian Spending

The Reserve Bank of Australia (RBA) has explored the potential impact of an AI stock slump on household spending, with findings that suggest significant downside risks. Internal RBA papers estimate that about 5.5% of household financial wealth is tied to AI stocks, primarily through superannuation funds and mostly in overseas companies. A 20% permanent decline in AI stock prices could reduce long-run consumption by around 0.7%, rising to 2.5% if losses extend to other equities. However, RBA staff note that this effect may be overstated since households monitor superannuation balances less closely than direct shareholdings.

The analysis comes amid broader economic pressures, including a substantial loss in housing wealth. Bloomberg Economics reports that Australian households have lost approximately A$510 billion in housing wealth since late March, which could drag down spending by A$40 billion to A$50 billion through early 2027. The RBA's models indicate that a 1% increase in housing wealth boosts long-run spending by about 0.16%, with half of this impact occurring within two quarters.

The RBA's internal documents also provide insights into its policy stance. The bank's models suggest the non-accelerating inflation rate of unemployment (NAIRU) is around 5%, though staff have adjusted this to 4.6% to align with August's unemployment rate. Additionally, a highly restricted document estimates the real neutral interest rate, neither stimulating nor restraining the economy, to be between 0.4% and 1.2%. These findings come as the RBA raised the cash rate to a 15-year high of 4.6% in September, with some economists anticipating another hike in November.

The next key indicators for policy will be the minutes from the September meeting, released on October 13, and the September-quarter inflation figures, due on October 28. The RBA's Governor Bullock faces a delicate balance, with inflation at 4% in August, well above the target range of 2% to 3%, while household spending remains flat and the housing market weakens.