QTPA Member Alert | Economic Update, (19 October 2012)

Economic Update, (19 October 2012)

With the Queensland State government undergoing cuts and reviews on public spending as well as the Federal government undertaking their mini budget and attempting to rein in a $4 billion deficit, Turf Queensland will attempt to keep you abreast of what is occurring and affecting the Queensland and Australian economies when information comes to hand as this has the role on effect with your Turf production businesses and hopefully assistes in the decision-making processes.  The good news is there seems to be a turn occurring within the housing market.

Domestic Economy

The RBA has been saying for some time that given the benign outlook for inflation there was room to make further interest rate cuts if the outlook for economic activity deteriorated. In recent weeks, the run of international and domestic news has suggested that the pace of global growth has indeed edged down. As a result, the RBA now thinks that Australia’s all-important resource investment pipeline may peak earlier, and at a lower level, than had previously been expected.

In particular, the RBA noted that mining companies had become increasingly reluctant to commit to new investment projects that had been under active consideration and, in some cases, had delayed spending on committed projects and closed some older, higher-cost mines earlier than had been expected. In addition, while the prospects for LNG projects remained positive, some projects were reported to be running behind schedule for various logistical reasons.

The 25 basis point cut in official interest rates in October 2012 should add further support to the housing market, which has shown signs of stabilising (albeit at a low base) following the 75 basis point cut in interest rates earlier this year. Housing finance data released this week showed that new lending (excluding refinancing) to owner-occupiers increased by close to 2% in July and August, following declines in the first four months of the year. Encouragingly, the monthly increase seen in housing finance during August was broad-based across mainland states including NSW (3.3%), Tasmania (3.3%), Qld (4.1%), as well as WA (1.2%). In contrast, Victoria softened for a second consecutive month (-1.2%).

Although still exceedingly weak, this growth in new housing credit is a positive for the national housing market and for housing construction. Changes in housing finance typically lead housing construction activity by between 6 to 12 months, so the improvement seen in this indicator points to some improvement in housing construction activity during the first half of 2013. This will be a welcome relief for businesses in the construction sector, which are still facing declining activity levels following the sharp falls in building approvals seen since the beginning of 2010. On a seasonally adjusted basis, the value of new residential building work done was reported (in revised data released by the ABS this week) to have fallen by 3.1 per cent in the June quarter, to be 7.4 per cent lower over the year, with alterations and additions to residential buildings also falling by 3.6 per cent in the June quarter. There were no other economic data of note released in Australia this week.

Overseas Economy

The international marketplace continues to remain confused with Europe undergoing considerable monetary pressure on the euro within various countries, USA remains fragile but showing signs of improvement and our large trading partner (especially with mining) China having a better result than what was first thought.  This all has a considerable effect on our domestic market.

The international data released over the past week largely centered on the United States and China, and generally came in slightly above or in line with expectations. This helped to raise hopes of a pick-up in the pace of the recovery in the US and helped allay fears of a sharper than expected slowdown in China. In fact, a number of Asia-based economists saw the Chinese data released over the past week as suggesting that Chinese economic growth has already stabilised, after decelerating for most of this year.

In the US, the weekly initial jobless claims fell 30,000 to 339,000, well below economists’ expectations of 370,000. Most positively for the US, private housing approvals increased by 11.6 per cent m/m in September and are now 45.1 per cent higher over the year. This increase in building approvals is translating into strong growth in house building activity, with private housing starts increasing by 15.0 per cent m/m in September 2012, while housing completions are close to 14% higher over the year.

In China, the first estimate of GDP for Q3 showed growth of 7.4% from a year earlier, which was in line with market expectations. This translated to GDP growth of 2.2% q/q in Q3, up slightly from 2% q/q in June. Growth in industrial output and fixed asset investment also came in above market expectations, growing by 9.2% and 20.5% respectively. Retail sales and exports also grew stronger than expected during September 2012.