Australian Builders Waiting on Lift From Low Rates, Survey Shows

Australian Builders Waiting on Lift From Low Rates
The Reserve Bank of Australia has cut its benchmark lending rate by 1.75 percentage points in the past 18 months to help boost the economy. Photographer: Brendon Thorne/Bloomberg

April 8 (Bloomberg) -- Australian builders are suffering from weak profits and less work as the expected economic boost from lower interest rates fails to revive the industry, according to a survey.

An index of profitability remained below 50 in the first quarter and has held below the neutral level since mid-2011, Master Builders Australia Ltd. said in an e-mailed report, citing a survey of 500 members. Builders expect little change in profits in the next six months after previously expecting a deterioration, the report said.

“The turnaround in sentiment suggests previous interest rate cuts may be beginning to take hold, but builders are yet to see any benefit from rate reductions,” Peter Jones, chief economist at Master Builders, said in the report. “Builders reported less work on the books, sales contracts remain essentially unchanged and profits remain weak.”

The Reserve Bank has cut its benchmark lending rate by 1.75 percentage points in the past 18 months to help boost the economy, particularly for builders and manufacturers in the south and east where the mining boom hasn’t been felt. Home-building approvals rose for the first time in three months in February, gaining 3.1 percent.

“The industry has been earmarked by Treasurer Wayne Swan and the Reserve Bank to play a major role lifting the non-mining sectors as the economy loses the mining investment boom as a driver, however, the industry is a long way from filling that gap,” Jones said.

The profitability index compiled by Master Builders was at 41.3 last quarter from 38 in the final three months of 2012.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net