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From: David John Bradshaw
Australian Financial Review
April 3 2002
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A U S T R A L I A
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Building boom goes bust
Apr 3 12:14
Jim Parker
AFR
Australia's home building boom has come to a crunching halt, according to official figures on Wednesday, providing immediate vindication for the Reserve Bank's earlier decision against raising interest rates just yet.
But strong consumer spending flowing from the surge in housing activity last year is still boosting imports and driving a widening in the nation's trade balance.
Building approvals fell by a seasonally adjusted 3.7 per cent in February, the Australian Bureau of Statistics said, weaker than market forecasts of a 1.0 per cent decline. In trend terms, approvals were down for a fifth consecutive month.
Economists said the scaling back of the Federal Government's first-home buyers' subsidy from January, the threat of higher interest rates and the satisfying of pent-up demand all suggested the housing cycle had peaked.
That in turn provided a rationale for the RBA in moving cautiously in withdrawing the interest rate stimulus it injected into the economy last year.
"If the housing cycle is coming off, that will take some of the steam out of the economy and the steam out of house prices and maybe is a reason for the RBA to hold back a bit longer," said Commonwealth Bank chief economist Michael Blythe.
"One of the lessons of 2000 was the RBA started raising rates just as the housing cycle was tipping over and basically hit it over the head with a sledgehammer and we had a huge slump as a result."
The RBA earlier left official interest rates unchanged in the wake of its monthly board meeting on Tuesday, signalling it will leave its widely anticipated rate increase until May at the earliest.
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The bureau of statistics also announced on Wednesday that Australia recorded a trade deficit of $604 million in February, higher than market forecasts of $500 million and after a $233 million shortfall in January, revised from $308 million.
The February deficit was due to a flat performance by goods and services exports, alongside a 3 per cent rise in imports.
Rural goods exports actually rose by 9 per cent, but this was offset by a 4 per cent fall in non-rural and other goods.
Consumption goods drove the strength in imports, rising 7 per cent, while capital goods fell marginally and intermediate and other goods rose by 1 per cent.
Australia's worsening external trading position is a function of its economy outgrowing those of its trading partners.
The prospect of stronger world growth later this year may help to improve the nation's trading fortunes, although the stronger Australian dollar may offset that impact by hurting the competitiveness of exporters and making imports cheaper.
The strength of the housing market has been a significant contributor to the resilience of the domestic economy in the past year in the face of a global downturn.
As well as the direct impact of increased home building on the housing industry, there are multiplier effects throughout the economy via increased spending on household goods and services.
But economists warn that a levelling out in construction activity, together with the dampening effects of rising interest rates and oil prices, should act as a brake on the economy later this year.
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Australian Financial Review
April 3 2002
Home | Register | Personalise | Archive | About | Help | Feedback
A U S T R A L I A
--------------------------------------------------------------------------------
Building boom goes bust
Apr 3 12:14
Jim Parker
AFR
Australia's home building boom has come to a crunching halt, according to official figures on Wednesday, providing immediate vindication for the Reserve Bank's earlier decision against raising interest rates just yet.
But strong consumer spending flowing from the surge in housing activity last year is still boosting imports and driving a widening in the nation's trade balance.
Building approvals fell by a seasonally adjusted 3.7 per cent in February, the Australian Bureau of Statistics said, weaker than market forecasts of a 1.0 per cent decline. In trend terms, approvals were down for a fifth consecutive month.
Economists said the scaling back of the Federal Government's first-home buyers' subsidy from January, the threat of higher interest rates and the satisfying of pent-up demand all suggested the housing cycle had peaked.
That in turn provided a rationale for the RBA in moving cautiously in withdrawing the interest rate stimulus it injected into the economy last year.
"If the housing cycle is coming off, that will take some of the steam out of the economy and the steam out of house prices and maybe is a reason for the RBA to hold back a bit longer," said Commonwealth Bank chief economist Michael Blythe.
"One of the lessons of 2000 was the RBA started raising rates just as the housing cycle was tipping over and basically hit it over the head with a sledgehammer and we had a huge slump as a result."
The RBA earlier left official interest rates unchanged in the wake of its monthly board meeting on Tuesday, signalling it will leave its widely anticipated rate increase until May at the earliest.
advertisement
advertisement
The bureau of statistics also announced on Wednesday that Australia recorded a trade deficit of $604 million in February, higher than market forecasts of $500 million and after a $233 million shortfall in January, revised from $308 million.
The February deficit was due to a flat performance by goods and services exports, alongside a 3 per cent rise in imports.
Rural goods exports actually rose by 9 per cent, but this was offset by a 4 per cent fall in non-rural and other goods.
Consumption goods drove the strength in imports, rising 7 per cent, while capital goods fell marginally and intermediate and other goods rose by 1 per cent.
Australia's worsening external trading position is a function of its economy outgrowing those of its trading partners.
The prospect of stronger world growth later this year may help to improve the nation's trading fortunes, although the stronger Australian dollar may offset that impact by hurting the competitiveness of exporters and making imports cheaper.
The strength of the housing market has been a significant contributor to the resilience of the domestic economy in the past year in the face of a global downturn.
As well as the direct impact of increased home building on the housing industry, there are multiplier effects throughout the economy via increased spending on household goods and services.
But economists warn that a levelling out in construction activity, together with the dampening effects of rising interest rates and oil prices, should act as a brake on the economy later this year.
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