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Australia: Australian property sector likely to be slowly on the mend

2012/06/21

Australian property sector likely to be slowly on the mend

Building approvals, retail sales, trade figures, unemployment, and business and consumer confidence are released in the coming weeks and should offer some fresh views on the strength of the Australian economy. Nevertheless, we believe these data readings are likely to continue to fluctuate additional widely than expected until there is a additional pronounced and sustained world recovery.

Recent economic indicators are not particularly upbeat and consistent with our expectation that the underlying momentum of the recovery remains insufficient. Due to a slight pick up in dining out spending, retail sales were up 0.3% in January according to the Australian Bureau of Statistics (ABS). That said, evolution in job creation hasn’t been happening fast enough. Labour market conditions softened again, as evidenced by the rise in job losses in February.

As a result, the unemployment rate increased to 5.2%, slightly up from 5.1% in January and inflationary pressures abated somewhat. This suggests inflation expectations remain well-anchored in line with the Reserve Bank of Australia’s set target. Furthermore, both business confidence and consumer sentiment numbers continued tumbling.

The National Australia Bank business confidence survey indicated that sentiment deteriorated in February next a slight improvement in January. The Westpac- Melbourne Institute index of consumer sentiment showed a 5 point reduction in March (101.1 points in February).

Although the recent data analysed here probably reveals some degree of resilience, the economic performance is unlikely to improve notably in coming months. On the housing front, encouragingly there had been some signs of a pick-up in activity.
The number of permits issued for amount types of dwellings saw a 0.9% increase in January, compared with a 0.8% reduction December 2011 according to the ABS statement.
Nevertheless, in general building approvals dropped by 14.6% year-on-year. It is worth noting that total housing approvals increased marginally, by 0.3% in January to 7623 units from 7620 last December. Looking ahead, we believe that housing and construction activity may only begin to show a slightly additional positive trend at the same time as the economy proves relatively additional resilient amid world increase worries and uncertainty.

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