Australia | Dec 04 2008
By Chris Shaw
Further evidence the Reserve Bank of Australia (RBA) is unlikely to have finished easing of official interest rates came today with the release of Australian building approval numbers for October. These came in sharply below market expectations.
Approvals for the month declined 5.4% compared to the consensus market forecast of no change. The result marks the fourth month in a row of below consensus numbers for this measure. According to ANZ Banking Group economist Dr Alex Joiner, the numbers show the crisis of confidence currently in the building sector.
As TD Securities senior strategist Joshua Williamson notes, today’s number means the level of approvals has now fallen back to where it was before the previous economic downturn in 2000/01. But as Dr Joiner points out, there is a strong correlation between interest rates and building approvals and so the recent 300-basis points in cuts should see some improvement in coming months.
Westpac points out the numbers for Queensland were particularly weak, with its numbers declining 25.9% overall and 49% in the apartment market. As Williamson notes, this compares to national figures of core house approvals down 2.9% and apartment approvals down 11%. The latter is now 28% below the level of one year ago.
With residential approval values also down 7.5% and total building approval values down 19% for the month, Williamson expects building and structures investment to actually subtract from GDP into the early part of 2009. Westpac agrees, suggesting while the recent cuts in rates will arrest some of the decline in approvals in coming months, the poor level of investment will continue to drag on growth.
According to Williamson, the RBA is likely to follow up this month’s 1.0% cut in interest rates with a further 0.75% cut at its February meeting.