the same time, our review noted that financial stability risks in china have been building. the chinese economic expansion over recent years has been associated with increasing debt, strong asset price growth and apparent overinvestment in some sectors and regions ( graph 2 ). if growth were to fall further from its high recent rates, past excesses might be exposed, and leverage is always harder to manage in a slower growth environment. these risks of course are hard to assess. the chinese authorities have many levers to support growth and financial stability, given the ongoing large role of the state in the economy, the heavily regulated financial system and the presence of capital account controls. the measured central government fiscal position is also strong, though the overall public sector position is less so given the build - up in debt among local governments and state - owned enterprises. bis central bankers ’ speeches graph 2 outside china, country - specific risks also seem to have been increasing in a number of other emerging market economies – for example brazil, russia and turkey. among the various factors contributing to that have been falling commodity prices, political instability and concerns over excessive corporate leverage. in response, equity prices and exchange rates in these economies have generally fallen quite sharply. these trends were already evident through the course of last year. these factors form part of the background to the nervousness seen in a number of markets in the early part of 2016. as i said at the outset, the early part of this year has seen some significant volatility in global markets, especially in equities and in some commodity prices. there has also been some widening in risk spreads for lower rated corporates and emerging market sovereigns. the broad equity price indices have fallen by around 10 per cent in the united states, 15 per cent in europe, and by around 20 per cent in china since the start of the year ( graph 3 ). these have been accompanied by further large falls in prices of some commodities, most notably oil, continuing the declines that they had recorded over the previous couple of years ( graph 4 ). bis central bankers ’ speeches graph 3 graph 4 bis central bankers ’ speeches from a financial stability perspective, these developments raise a number of important questions : to what extent ( if any ) are these price movements inter - related, and in what way? and what, if anything, do they tell us about the evolving risk environment? it is in the nature of these things that definitive interpretations are rarely possible, and certainly not in real time. at this

/ speeches / 2019 / sp - gov - 2019 - 03 - 06. html 13 / 18 3 / 7 / 2019 the housing market and the economy | speeches | rba graph 12 the more important influence, though, is what is happening with household income. for many people, the main source of their wealth is their human capital ; that is, their future earning capacity. as i have discussed on previous occasions, growth in household income has been quite weak for a while. it is plausible that, for a time, this didn't affect people's expectations of their future income growth ; that is the value of their human capital. so they didn't change their spending plans much, despite their current income growth being weak, and the saving rate fell. however, as the period of weak income growth has persisted, it has become harder to ignore it. expectations of future income growth have been revised down and it is likely that this is affecting spending. my conclusion here is that wealth effects are influencing consumption decisions, but they are working mainly through expectations of future income growth. swings in housing prices and turnover in the housing market are also having an effect, but they are not the main issue. this assessment is consistent with the data on housing equity injection ( graph 13 ). over recent years, households have been injecting substantial equity into housing and have not been using the higher housing prices to borrow to support their other spending. this is in contrast to the period around the turn of the century, when households were withdrawing equity. https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 03 - 06. html 14 / 18 3 / 7 / 2019 the housing market and the economy | speeches | rba graph 13 given this assessment, developments in the labour market are particularly important. a further tightening of the labour market is expected to see a gradual increase in wages growth and faster income growth. this should provide a counterweight to the effect on spending of lower housing prices. taking these various considerations into account, the adjustment in our housing market is manageable for the overall economy. it is unlikely to derail our economic expansion. it will also have some positive side - effects by making housing more affordable for many people. a related issue that the rba has paid close attention to is the impact of lower housing prices on financial stability. in 2017, apra assessed the ability of australian banks to withstand a severe stress scenario, in which housing