Australian home-building approvals declined in July by the most in almost a decade as mining dominated business investment last quarter, underscoring the nation’s two-speed economy.
The number of permits granted to build or renovate houses and apartments slumped 17.3 percent from June, when they fell a revised 1 percent, the Bureau of Statistics said in Sydney today. That was the steepest slide since November 2002. Separate data on business spending showed mining investment rose by 10 percent last quarter, while manufacturing declined by 3.8 percent and other industries by 4 percent.
Reserve Bank of Australia Governor Glenn Stevens has kept the benchmark interest rate unchanged for the past two meetings and said last week policy makers are prepared to respond should the economy slow, predicting that the nation’s mining investment boom has at least another year before easing. A pipeline of resource projects has driven up the currency and hurt manufacturing, retail and tourism industries.
Today’s data “is a literal dog’s breakfast,” said Craig James, a senior economist at a unit of Commonwealth Bank of Australia. (CBA) “Business spending was up, but dominated by mining. Investment plans are healthy but cracks have appeared. And residential building remains in the doldrums.”
Apartment Permits Slump
Permits to build private houses rose 1.6 percent to 7,329 in July from the previous month, the report showed. Approvals for apartments and renovations slumped 40.5 percent to 3,738.
The central bank lowered borrowing costs by a total of 50 basis points late last year and a further 75 basis points in May and June to help shield the economy from Europe’s debt crisis and slower growth in China. It held the key rate at 3.5 percent, the highest among major developed economies, at the past two meetings.
The reductions in rates have resulted in borrowing costs “a little below their medium-term averages,” Stevens told a parliamentary panel in Canberra on Aug. 24.
Australian companies forecast investment of A$181.5 billion ($187.4 billion) in the year ending June 30, which was 4.7 percent higher than their estimate three months earlier, the capital expenditure report showed. Mining investment was estimated at A$119 billion, little changed from A$119.3 billion three months earlier.
“Australia’s long-running two-speed economy theme remains intact,” said Alvin Pontoh, an Asia-Pacific strategist at TD Securities Inc. in Singapore, who noted that mining investment estimates are usually increased at this time of year. “As this upgrade was absent, this report could be read as weak,” he said.
The Australian dollar extended losses against all 16 major peers after the data. It touched $1.0318, the weakest since July 26, before trading at $1.0324 as of 1:34 p.m. in Sydney.
BHP Billiton Ltd. (BHP), the world’s biggest miner, last week mothballed projects valued at more than A$50 billion by Credit Suisse Group AG and Deutsche Bank AG. At the same time, Australia’s resources minister called the end of a bull run in commodity prices.
Today’s building approvals data showed permits in July declined 10.6 percent from a year earlier. That compares with economists’ forecast for a 6 percent increase year-over-year.
A private report this week showed sales of newly built homes dropped to the second-lowest level on record in July.
Sales fell 5.6 percent to 5,682 last month from June, when they gained 2.8 percent, the Housing Industry Association said Aug. 28, citing a survey of the nation’s largest builders. Detached house sales decreased 5.5 percent to the lowest level since 2000, while apartments weakened 6.4 percent, it showed.
Traders are pricing in an 80 percent chance the RBA will keep rates unchanged at its policy meeting next week, swaps data compiled by Bloomberg show.
“The Reserve Bank certainly has some work on its hands to disentangle the various parts of the economy,” James said. “Mining states remain in strong shape, but non-mining states aren’t investing or building new homes. Clearly the Reserve Bank needs to keep rate cuts on the agenda.”
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