Danish investment bank Saxo is known for making a list of predictions on the unlikely but possible events that might be awaiting us in each new year.
From Apple acquiring Tesla for just $520 a share next year to Germany falling to pieces, its predictions are unlikely but possible scenarios.
Saxo Australian markets strategist Eleanor Creagh spoke with Your Money Live about some of the wild speculations that the bank has considered for 2019.
“These are predictions that maybe we put a 1 per cent probability chance on but they’re really to get us talking, to spur debate and get us thinking what could affect our investments and portfolios next year,” Creagh explained.
While the predictions span the entire globe, including the EU writing all its debts off, there was one that has got Australia right in its crosshairs.
The collapse of the local property market followed by a deep and dark Australian recession.
But how exactly would that unfold?
“We see that there are risks that when the royal commission final report is announced next year that maybe lending standards are forced to tighten further and this could create a vicious cycle and a negative feedback loop whereby prices fall further off the back of reduced loan supply,” Creagh explained.
“We then have people suffering increased mortgage stress as they can’t afford to pay back that mortgage as house prices fall, those with less equity in their homes then have to sell,” she added.
Those falls would then see unemployment rise as the construction industries decline and household spending plummets, leading to more unemployment and triggering a full-blown Australian recession.
“That all really perpetuates that negative feedback loop which sees prices fall further and further,” Creagh said.
“In that instance, we’ve actually painted into our outrageous prediction that the RBA and the Australian government are forced to step in and bail out the banks,” she concluded.
Watch the full interview above for the full explanation of how an Australian economic collapse could play out as well as hear the other global predictions