Housing Investment Likely to Wane: RBA 1

Wednesday, September 14th, 2016
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Housing investment and construction in Australia are likely to wane in coming years, with an accompanying drop in their contribution to the strength of the economy, the Reserve Bank says.

RBA assistant governor Christopher Kent says residential investment and the housing construction cycle won’t add as much to overall economic growth as they have in recent years, when activity in both areas really ramped up.

“Our forecasts would be for the level of construction activity to stay elevated for a time but that of is course consistent with the gradual reduction in the contribution of dwelling investment to growth,” Dr Kent told a Bloomberg event in Sydney on Tuesday.

“So we see that waning over the next couple of years because we don’t see construction continuing to increase at the rate it has.”

However, Dr Kent said while the direct contribution of dwelling investment to growth has been positive and timely as the mining sector moderates, its contribution shouldn’t be overstated.

He noted that while mining investment had fallen in line with expectations, the fall in the terms of trade had been larger than RBA forecasts.

Meanwhile, the Australian dollar had not depreciated by as much as the central bank expected, Dr Kent said.

“There has been significant adjustment in a range of market ‘prices,’ including wages and the nominal exchange rate, although the exchange rate has depreciated a little less than otherwise given global developments,” he said.

Dr Kent said the RBA would like to see some strength in major economies, so they can feel more confident about hiking rates, particularly the US Federal Reserve.

High US rates would like benefit Australia by weighing on the Australian dollar, which would put upward pressure on sluggish inflation and improve the economy’s global competitiveness.

“If that happens and they’re raising rates, hopefully that’s the good news story, that they’re doing (that) because they’re more confident inflation has picked up, rather than (thinking) their economies will be more resilient under higher rates,” he said.

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  1. Tom Robins

    Whilst the booming market for home building has brought Australia time in terms of our adjustment to the resource investment slowdown, this was always going to be temporary, and it is concerning that other sectors (at least to the best of my knowledge) are generally recovering only modestly if at all.

    Bottom line, Australia will probably have a pretty soft economy by the middle of next year. It hopefully will not be a recession, but we must at least steel ourselves for some kind of a slowdown.