Bloomberg News

Australia’s Weaker Housing, Business Confidence May Slow Hiring: Economy

March 12, 2012

Glenn Stevens, governor of the Reserve Bank of Australia, kept borrowing costs unchanged last week as policy makers rely on a A$456 billion ($481 billion) pipeline of resource investment to spur growth and employment. Photographer: Ian Waldie/Bloomberg

Glenn Stevens, governor of the Reserve Bank of Australia, kept borrowing costs unchanged last week as policy makers rely on a A$456 billion ($481 billion) pipeline of resource investment to spur growth and employment. Photographer: Ian Waldie/Bloomberg

Australian home-loan approvals dropped for the first time in 10 months and business confidence sank to a five-month low, signs that job growth may struggle to rebound after stalling last year.

The number of loans granted to build or buy houses and apartments fell 1.2 percent in January, a government report showed in Sydney today, twice the 0.6 percent drop forecast by economists. A private survey of 500 companies taken Feb. 20-24 and released earlier today showed business confidence fell last month to the lowest level since September.

The data added to a string of weaker-than-forecast economic figures in Australia, where the benchmark interest rate of 4.25 percent is the highest among major developed economies. Reserve Bank Governor Glenn Stevens kept borrowing costs unchanged last week as policy makers rely on a A$456 billion ($481 billion) pipeline of resource investment to spur growth and employment.

“There’s little to suggest growth is set to tick up in the near term,” said Michael Turner, an economist in Sydney for Royal Bank of Canada who predicts two more rate cuts this year. “That suggests a bit of weakness in demand will feed into the labor market and should give the RBA enough comfort to ease further.”

The Australian dollar was little changed near a seven-week low, buying $1.0548 at 1:58 p.m. in Sydney from $1.0519 before the data were released. The so-called Aussie late yesterday in New York touched $1.0474, the weakest level since Jan. 25.

Export Boom

Manufacturing and tourism in Australia are straining under a currency that has soared 68 percent in the past three years, driven up by higher rates and a mining boom predicted to last decades as urbanization accelerates in China and India.

Elsewhere in Asia, Bank of Japan Governor Masaaki Shirakawa will probably leave the policy rate and asset fund unchanged when a two-day meeting ends today, according to 12 of 14 economists surveyed by Bloomberg News.

Asian stocks climbed, erasing yesterday’s losses, and the yen fell against 15 of its 16 major peers before data forecast to show improving U.S. retail sales and policy meetings by the Federal Reserve and Bank of Japan.

The MSCI Asia Pacific Index (MXAP) rallied 1.1 percent as of 11:58 a.m. in Tokyo, climbing for the third time in four days. Futures on the Standard & Poor’s 500 Index rose 0.4 percent. The yen weakened 0.2 percent to 108.41 per euro and oil traded near the lowest level in a week in New York.

Philippine Shipments

Philippine exports unexpectedly rose in January, snapping eight months of declines, a National Statistics Office report showed in Manila today.

In Europe later today, a report may show France’s inflation rate was probably unchanged in February, with consumer prices rising 2.6 percent, economists predicted. Inflation in Spain was also likely unchanged in February, with consumer prices rising 1.9 percent.

European leaders have declared a turning point in the sovereign debt turmoil that is now in its third year after putting up 386 billion euros ($509 billion) of aid.

In the U.S., retail sales probably increased 1.1 percent in February, the most in five months, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department releases figures today. The Federal Reserve also meets to decide on monetary policy.

Fed Chairman Ben S. Bernanke said Jan. 25, after the FOMC’s last meeting, that policy makers were considering additional asset purchases to boost growth. The Fed has pledged to keep its benchmark rate at almost zero through at least late 2014 and has previously purchased $2.3 trillion of securities in two rounds of so-called quantitative easing.

Housing Slump

Today’s Australian housing report showed the total value of loans fell 2.3 percent to A$20.7 billion in January. The value of lending to owner-occupiers gained 0.1 percent and value of loans to investors who plan to rent or resell homes dropped 7.1 percent, the report showed.

Home loans weakened before Australia’s four biggest banks in February raised their standard variable mortgage rates independently from the RBA, drawing criticism from the government. The central bank has said that competition for deposits, recent covered bond sales, and the cost of swapping funds raised offshore into Australian dollars had added to the price lenders paid to raise money.

“Immediate prospects for housing finance are clouded by the decision of commercial banks to lift variable rates,” Westpac Banking Corp. (WBC) economists led by Bill Evans said in a research report after the data. Other issues restraining housing include “soft labor market conditions, a lack of consumer confidence, stretched housing affordability and global uncertainties,” they said.

Payroll Cuts

First-home buyers accounted for 20.3 percent of dwellings that were financed in January, down from 20.9 percent in December and higher than 16.2 percent a year earlier, the report showed today.

Australian employers unexpectedly cut payrolls in February and unemployment rose for the first time since August, a government report showed last week.

Gross domestic product in the final three months of 2011 grew 0.4 percent from the third quarter, half the expansion economists predicted, a government report showed March 7. Household consumption, which accounts for 56 percent of GDP, advanced at the slowest pace since the first quarter of 2010.

The central bank said in a quarterly statement on Feb. 10 that retail spending remains subdued in Australia and property was weak. Housing transactions are “around the lowest they have been over the past two decades,” it said.

Confidence Deteriorates

Australian business confidence deteriorated in most industries last month “except mining, where it rose solidly,” Alan Oster, chief economist National Australia Bank Ltd. (NAB) that publishes the sentiment survey, said in a statement. “Uncertainty emanating from the euro zone and financial markets, the persistent strength in the Australian dollar and the decision by the RBA to keep rates on hold in February” may have contributed to the weakness, he said.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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