Inflation ‘hurt’ to continue but no recession: NAB CEO

People are cutting back on spending but NAB boss Ross McEwan does not see signs of ‘mortgage prisoners’ in the housing market.

National Australia Bank chief executive Ross McEwan says high inflation will “hurt” people for some time, but expects Australia to avoid a recession and says the bank’s customers won’t fall off a mortgage cliff.

Mr McEwan said the economy is weaker than last year but still in pretty good shape, although harder times will continue.

“Inflation, while slowing, has hurt Australians more during the past 18 months than it has for three decades,” Mr McEwan told an Australia Israel Chamber of Commerce event in Melbourne.

“There is a lot of discussion as to whether Australia will head into a recession. My view is we won’t.

“But things are harder, and will continue to feel harder for some time, because of the difficult but necessary actions taken to get inflation down.”

Mr McEwan said NAB data showed the high cost of living is already the greatest driver of stress for Australians by a large margin. Many customers are budgeting for the first time and are also making lifestyle changes, such as cutting back on eating out and car trips, saving them on average about $300 a month.

Mr McEwan said spending has slowed in some parts of the retail sector as people divert that “extra bit of pocket money” towards groceries, petrol, mortgage payments and rent. But many people are travelling again and holidaying overseas.

“People are just working out where they spend their money and where they take that money from.”

Mr McEwan said there were reasons to be confident the economy will turn more positive towards the latter half of next year, including unemployment remaining near its lowest level in decades and a record number of migrants entering Australia.

“I do believe that by the end of next year this economy will start to lift again. I’m not too sure how you bring 400,000 people into a country and it doesn’t keep moving positively forward.

“That is a positive sign for Australia and why I think it will kick on next year, as long as we can get building houses and have somewhere for them to live.”

While acknowledging some customers are hurting, Mr McEwan said NAB had been in contact with more than half a million of its customers and the main message coming back was “we’re doing OK”.

It included contacting about 8000 home loan customers the bank considered most at risk, but only 14 needed immediate help.

“This is in contrast to some of the unhelpful focus on catchphrases like ‘mortgage cliff’ or ‘mortgage prisoners’,” Mr McEwan said, referring to customers moving from ultra-low fixed rates to higher variable rates.

“The reality is the number of mortgages we have in possession, which only happens after a long period of trying to work with a customer, is below not only pre-pandemic levels, but also the 10-year average.”

He noted the housing market had held up better than most expected through the sharp interest rate rise cycle.

But Mr McEwan called on governments, banks and developers to act faster to address the critical housing shortage. He said not enough homes are being built for Australia’s growing population, which can only push up house prices further over time.

“A co-ordinated response from federal, state and territory governments is needed to implement faster, consistent and simpler planning and approvals. This relates to both land development and residential construction.”

Mr McEwan welcomed national cabinet proposals to streamline approvals, planning and zoning, following a housing deal that set a new target to build 1.2 million homes over five years.

“This is not just for government to solve. Banks, developers and community partners can move faster,” he said.

“This urgency also needs to apply to solving Australia’s growing social and affordable housing crisis.”

NAB will lend an extra $6bn for affordable and specialist housing by 2029, he added.

Originally published as Inflation ‘hurt’ to continue but no recession: NAB CEO