Building approvals fall in October
A sharp fall in building approvals is another sign the Reserve Bank of Australia should cut the cash rate at its monthly board meeting.
Figures released by the Australian Bureau of Statistics (ABS) on Tuesday showed a 7.6 per cent fall in residential building approvals in October.
National Australia Bank senior economist Spiros Papadopoulos said the figures added to the case for the RBA to cut the cash rate from its current level of 3.25 per cent at its December board meeting on Tuesday.
"Taken alone, absolutely, it suggests they should cut but I don't think it will be a deciding factor," he said.
The fall in approvals suggested residential construction would remain weak in at least the first half of 2013, Mr Papadopoulos said.
"It supports the story that dwelling investment is weak and will remain weak for the coming quarters next year," he said.
The ABS also released figures showing Australia's current account deficit widened to $14.9 billion in the September quarter, despite a rise in exports in real terms.
Mr Papadopoulos said the export figures would have a positive effect on official September quarter gross domestic product (GDP) figures to be released on Wednesday, though this would be offset by a two per cent fall in government spending in the quarter.
Macquarie senior economist Brian Redican said the main focus for the building approval figures is the fall in private sector house approvals, which, he says, is the best indicator of underlying demand.
"They are still well below the levels we saw at the start of the year," Mr Redican said.
"I think that underlines from our perspective one of the challenges for the Reserve Bank in terms of trying to get traction on the housing market, and for it to drive growth once mining investment has peaked."
Mr Redican said the main reason for the widening of the current account deficit was the recent fall in commodity prices.
"That's also the reason why mining investment plans are being pulled back," he said.
"The big fall in the terms of trade reversed that positive income effect over recent years and has also resulted in the blowout of the current account deficit."
Mr Redican says he expects the RBA to keep cutting the cash rate in the new year, on top of the expected quarter of a percentage point cut to be announced on Tuesday afternoon.
"Although the Reserve Bank has cut rates substantially over the past 12 months, it doesn't seem to have the same impact as previous rate cut cycles," he said.
"Rates are heading in one direction and that's down."
JP Morgan economist Stephen Walters said the wider current account deficit was the result of increased mining machinery imports, lower exports and falling commodity prices.
"The weak global economy means export volumes are down and also commodity prices are quite soft as well," he said.
"There's also the increase in imports given the capital spending boom that's going on in mining.
"A lot of the componentry is being imported, so that's blowing out the import side."
He said today's figures indicate foreign trade would add 0.1 percentage points to GDP growth, which was slightly firmer than expected.
But he said that would be offset by the government spending figures.
"We had an expectation of the net trade contribution being zero, so that adds a little to GDP for tomorrow," he said.
"But on the flip side... the government capital spending numbers were very, very weak, so that will shave quite a bit off GDP."
In reaction to today's figures, Mr Walters said he had downgraded his GDP growth estimate to 0.2 per cent from 0.3 per cent.
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