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Expert says Australia house prices are one of the biggest risks in the global economy

According to one expert, Australian house prices are one of the biggest risks to the global market.

Deutsche Bank Securities Chief Economist Torsten Slok appeared on CNBC’s Closing Bell to talk about his 20 biggest risks to markets in 2020.

He said that the biggest risk to the markets was the continued increase in wealth inequality, income inequality and healthcare inequality. Mr Slok said “It’s an issue we think will become important in 2020 and ‘21 and investors need to have a view on if the current trend will continue or will something be done about it.”

Two of the leading candidates to be the US Democratic candidates have significant policies aimed to address these issues which could result in more government spending, higher taxes and/or various ways of addressing spending. Markets would probably quite volatile if Ms Warren or Mr Sanders became the US President next year.

But one of the other risks to the global markets according to Mr Slok is a house price crash in Australia, Canada and Sweden where houses are expensive relative to incomes with high debt levels.

Plenty of politicians, real estate agents and bankers at Commonwealth Bank of Australia (ASX: CBA) & Westpac Banking Corp (ASX: WBC) would argue that we’ve already seen the worst of it – just look at how fast house prices are recovering in Sydney and Melbourne. It’s true, but it doesn’t change that Australia’s economy is still sluggish with emergency level interest rates and very high household debt levels.

According to Mr Slok, the other risks to the global economy are:

“Phase one trade deal remains unsigned, continued uncertainty about what comes after phase one.

Trade war uncertainty continued to weigh on corporate capex decisions.

Ongoing slow growth in China, Europe and Japan Triggering significant US dollar appreciation.

Impeachment uncertainty & possible government shutdown.

US election uncertainty; implications for taxes, regulation and capex spending.

Antitrust, privacy and tech regulation.

Foreigners lose appetite for US credit and US Treasuries following Presidential election.

MMT-style fiscal expansion boosts growth significantly in US and/or Europe.

US government debt levels begin to matter for long rates.

Mismatch between demand and supply in T-bills, another repo rate spike.

Fed reluctant to cut rates in election year.

Credit conditions tighten with more differentiation between CCC and BBB corporate & consumer credit.

Fallen angels: More companies falling into BBB. And out of BBB into HY.

More negative-yielding debt sends global investors on renewed hunt for yield in US credit.

Declining corporate profits means fewer dollars available for buybacks.

Shrinking global auto industry a risk for global markets & economy.

Brexit uncertainty persists.”

Foolish takeaway

I’m not convinced that Australia’s house prices are going to crash, the property market has a lot of momentum at the moment. I think it would take global interest rates to raise for something serious to happen.

But, it’s conditions like these that make me glad I have a lot of reliable dividend shares like these ones in my portfolio to weather whatever comes.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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