Australia | Sep 04 2006
By Chris Shaw
There are some early signs the Australian housing market is coming back to life, as July residential building approvals came in far higher than many in the market had expected.
HSBC notes its forecast was twice the market consensus, but was still about 80% below the actual figure of an 8.3% increase. The bank suggests this indicates developers are back in the market, a view supported by the 15.3% increase in multi-dwelling approvals.
The bank takes the view the housing market is now likely to continue to recover, meaning it will soon again be adding to GDP rather than subtracting from it as is currently the case.
ANZ Banking Group sees the figure as confirmation the market has shrugged off the May increase in interest rates, though it notes it remains too early to know how the August increase will flow though. Having said that, the bank suggests the most likely outcome is a sideways moving market, as it remains most likely there will be further increases in rates in coming months.
Other data released also suggests the general economy is in good health, as company profits before tax rose 10.9% in quarter and total wages were up 1.3%. Offsetting this was a slight decline in job advertisements in August, the fall of 1.3% reversing rises of 1.8% and 3.2% in the previous two months. ANZ suggests while additional jobs have been created, the pace of increase is likely to slow in the coming half year.
The bank has not adjusted its forecast for GDP growth in the June quarter of 1%, for an annual increase of 2.8%. This is despite a fall in non-farm inventories of 0.7% in the June quarter, an outcome below market expectations thanks in the bank’s view to a rundown in inventories. The figure is estimated to have taken about 0.6% from GDP growth.
Not everything is good news though, as the TD Securities – Melbourne Institute Inflation Gauge rose 0.6% in August, which follows a 0.2% increase in July. According to Stephen Koukoulas this has implications for interest rates, as it implies an annualised inflation rate of 4.1%, well above the Reserve Bank of Australia’s (RBA) target band.
Koukoulas suggests inflation will be very much on the agenda at the upcoming RBA policy meeting, agreeing with the ANZ view further increases in rates are likely as monetary policy remains quite loose.
Overall the data point to a reasonably healthy economy growing at a decent rate, but with the inflation problem showing no signs of disappearing the outlook is for further interest rate increases, which increases the potential for a different outlook to emerge over the next few months.