The Reserve Bank of Australia (RBA) now seems quite content to sit tight on rates for the remainder of 2011. At its September rate meeting, the RBA Board said it could not find enough evidence to support a rate reduction. While the conditions in global financial markets have been very unsettled over recent weeks, the Australian economy remains resilient – with new data showing sound GDP growth.
The economy grew by 1.2 per cent in the quarter, exceeding the market’s expectation of a 1 per cent expansion, showing there was strength in sectors outside of the powerful mining boom. In addition, the 1.2 per cent contraction in the first quarter caused by the Queensland flood crisis in January, which slowed major coal production, was revised to a better 0.9 per cent slowdown.
There was also a surprising 1 per cent bounce in consumption, which occurred despite the recent wave of consumer caution. It was the fastest quarterly growth in consumer spending in more than a year.
Speaking about the current Australian economy, Royal Bank of Scotland chief economist Kieran Davies says while there has been a lot of talk about our two-speed economy, and the potential of a “recession double dip”, the future looks surprisingly positive. “With all the talk of a two-speed economy in Australia, you would be forgiven for thinking that the economy outside of mining was in recession,” Mr Davies says.
“That certainly isn’t the case, as there was strong growth outside the resources sector.”
Mr Davies says he expects to see resurgence in consumer spending over the coming months, which would be good news for industry sectors the nation over who have struggled under challenging conditions for the past 12 months.
In terms of home loans, while consumer caution has plagued the mortgage market for some time, recent data suggests buyers are starting to return to the property market.
According to Veda’s quarterly Consumer Credit Demand Index (CDI), mortgage enquiries grew 6.3 per cent over the June quarter as borrowers took advantage of a highly competitive lending environment.
This data was supported by the Australian Bureau of Statistics (ABS), which recorded a 1.7 per cent increase in the number of finance commitments in July. In trend terms, increases were recorded in all states and territories. Queensland recorded the largest increase, up 2 per cent, Real Estate Institute of Australia (REIA) acting president Pamela Bennett says.
“Increases were evident for the construction of new dwellings (up 1.3 per cent), the purchase of established dwellings (up 1.7 per cent) and the purchase of new dwellings (up 2.3 per cent).
“The upturn in lending commitments reflects stability in interest rates and the housing market as well as increased competition among lenders,” she says.