The Reserve Bank of Australia says there are some encouraging signs in the housing market in response to lower interest rates.
RBA assistant governor of economics Christopher Kent says lower interest rates were buoying hopes of a pick-up in non-mining business investment in the coming financial year.
‘Our expectation is that there will be a gradual recovery in non-mining business investment and further moderate growth of dwelling investment,’ he told a business summit.
‘While many of the drivers of investment support such an outlook, and low interest rates are playing their role, the profile for non-mining business investment remains uncertain, including because of the high level of the exchange rate.’
Dr Kent said there have been some encouraging signs in the housing market in response to lower interest rates, with moderate growth expected in the established housing market and dwelling investment. ‘This should, in time, provide a measure of support to employment and activity in the non-mining business sector,’ he said. Speaking at the Bloomberg Australia economic summit in Sydney on Wednesday, Dr Kent noted consumer confidence had also risen to above average levels, and retail sales had been stronger since the start of 2013. He said this was consistent with household spending growing in line with the rise in incomes, and at a stronger pace compared with the end of 2012.
The rise in Australia’s population – at around 1.7 per cent annually – would also support demand.
‘Not only does population growth add to the demand for new goods and services, it also gradually eats into any existing spare capacity that might be hanging over some industries and provides an impetus for investment in new capacity,’ he said.
‘Higher consumption growth will also help to support business activity and investment.’
Dr Kent said although mining investment was expected to fall after peaking some time in 2013, it would still remain higher than normal.
‘While the exact timing of the peak in mining investment and the profile thereafter are uncertain, there is still a sizeable amount of work in the pipeline, including a number of large LNG projects,’ he said.
‘This means that the level of mining investment is likely to remain quite elevated for a time.’