Australian Housing Unlikely to Plug Resource Gap, Deloitte Says

Australian housing construction is unlikely to plug the growth gap that will open when resource investment peaks, and manufacturing and services will see little reprieve from a strong currency, a Deloitte Access Economics report showed.

The Canberra-based research company said in a report released today that the Reserve Bank of Australia may not cut its benchmark interest rate from the current half-century low of 3 percent. It predicts the nation’s resource investment boom will peak later this year and doesn’t see the Australian dollar “ceding” much recently gained ground until after mid-2014.

“Although interest-rate sensitive sectors such as retail and home building may lift, they won’t set any land speed records, and it is less clear that dollar dependent sectors will do the same,” the Deloitte report stated.

RBA Governor Glenn Stevens lowered the overnight cash rate target a quarter percentage point to 3 percent last month, the sixth reduction since Nov. 1, 2011, to spur hiring and revive the housing market. Policy makers are aiming to rebalance Australia’s two-speed economy, where mining regions in the north and west thrive while manufacturers, retailers and builders in the south and east struggle.

“The mega-mining construction projects which accounted for much of Australia’s production growth in recent years are hurtling towards a peak,” the Deloitte report stated. “And although interest-rate cuts will help retail spending and housing construction more than is yet realized, that won’t be enough of itself.”

A separate Deloitte survey of 73 chief financial officers taken from Dec. 7 to Jan. 14 indicated more than two-thirds expect the benchmark borrowing cost to be cut. It showed that 63 percent expect the Australian dollar to remain in a range of $1 to $1.05, up from 29 percent six months earlier.

CFOs “appear to be more aligned in their views than they were six months ago,” the report stated. “This suggests that a high Australian dollar is now seen as a longer term reality.”

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