This article is from the Australian Property Journal archive
AUSTRALIA's economy will not fall into recession and the residential property market is likely to lead the economy out of a downturn, according to economic forecaster BIS Shrapnel.
BIS Shrapnel’s Economic Outlook bulletin author Rachael Logie said the aggressive reduction in interest rates, now down 3% from early September, and the Federal Government’s strong fiscal stimulus package in December, are geared to restart the economy.
BIS Shrapnel believes the Australian economy will be boosted in the short-term by the strength of investment as the current round of projects are finished, the drought eases and exports strengthen as extra capacity from the minerals boom comes on-stream.
The real problem, Logie said is a lack of confidence, which is affecting both household and business expenditure.
BIS Shrapnel believes the collapse of business confidence, due to fears of recession, has been heightened by the credit squeeze and the collapse of share markets, while current problems obtaining debt and equity finance will affect the next round of investment projects.
“Banks are withdrawing credit from development and investment, particularly in property. They think this climate is like the late 80s and early 90s, when the collapse in property prices caused significant write-offs and solvency problems in the banking system. That may be the case overseas, but not in Australia. Indeed, having lost their competition, the banks will come out of this stronger than ever,” she added.
But Zoe said the real concern is in the medium-term. The stalling of the next round of projects will start to affect work done on building and minerals investment two to three years from now.
The issue is the magnitude and duration of the downturn in minerals investment, and the impact on the sectors and regions which service it. However, this can be offset as non-residential building recovers and infrastructure spending remains strong, provided that state and federal governments hold their nerve.
BIS Shrapnel predicts recovery in the residential property market and residential construction should lead a strengthening of growth a year from now.
“Construction activity is a primary driver of economic growth. It is mainly domestically serviced and has a strong multiplier to the rest of the economy. Unlike the overseas recession economies, Australia will experience rolling investment cycles, the net effect of which will drive our growth prospects.
“Consumer demand will remain flat in the first half of next year, but recover in the second half, while non-dwelling investment will hold for another year as we finish the current round of projects. By that time the recovery in residential construction will be coming through,” she concluded.
Australian Property Journal
