RBA Warns AI Stock Exposure Could Drag Australian Consumer Spending

The RBA estimates that 5.4% of Australian households’ financial wealth is held in AI stocks, comprising 1.7 percentage points from direct equity holdings and 3.7 percentage points via pension funds. Nearly 90% of this AI-related wealth is invested abroad, meaning a global selloff in AI stocks could directly affect household balance sheets and domestic consumption.

Using back-of-the-envelope calculations, the RBA found that a permanent 20% decline in AI stock prices would reduce long-run household consumption by 0.7%. If the spillover affects broader equity markets, the consumption drop could rise to 2.4%. The central bank cautioned that these estimates may overstate the impact, as households may not react equally to changes in directly held shares versus those held through superannuation, which are often monitored less closely until retirement.

The warning comes amid growing concerns about stretched valuations in AI-related investments, as billions of dollars flow into the sector. The RBA noted this could pose a second hit to household wealth, following earlier losses from declining property prices. A separate August 20 paper from the RBA’s Economic Group found that a 1% increase in housing wealth raises long-run household spending by 0.16%, with about half the effect felt within two quarters.

Applying this in reverse, Bloomberg Economics estimates that Australian households have lost A$509 billion in housing wealth between March 31 and October 6 during the current downturn. Further declines in house prices are expected after the RBA’s fourth rate hike in September, potentially creating a A$40–A$50 billion headwind to spending through the end of the year and into early 2027.

In another development, a highly restricted RBA document estimated Australia’s real neutral interest rate—the level that neither stimulates nor restrains the economy—at between 0.4% and 1.2%. The bank has acknowledged that estimates of this rate have risen recently but remain highly uncertain.

The RBA raised its key interest rate to 4.6% last week, a 15-year high, after inflation came in at 4% in August—above its 2% to 3% target band. This marks the fourth rate increase this year, totalling a one percentage point rise, driven in part by local capacity constraints and the energy shock from the US-Iran conflict.

Several economists, including former RBA Assistant Governor Luci Ellis, now chief economist at Westpac, expect another rate hike in November, bringing the cash rate to 4.85%. The RBA’s models place the NAIRU—the unemployment rate consistent with stable inflation—at around 5%, though policymakers currently use a lower assumption of 4.6%, matching the August unemployment rate.

RBA staff said they will remain attentive to upside risks to their NAIRU assumption. Governor Bullock described the labour market as “a bit tight,” noting that an unemployment rate between 4.5% and 5% would likely ease inflationary pressures in the jobs market.

This report is based on information released by the Reserve Bank of Australia and published via Bloomberg. No additional facts or analysis have been introduced beyond the supplied material.