Thursday, August 26, 2010

Recovery goes private - we've made it through the wilderness?

TD Securities

We've finally made it through?

The Australian economy has dodged a bullet. Private sector construction has climbed faster than government-funded construction for the first time since the economic stimulus measures put in place to fight the financial crisis.

Bureau of Statistics figures show private construction work jumped 4.9 per cent in the June quarter as public work inched ahead a mere 0.4 per cent after a 37 per cent surge over the the previous year.

"The timing couldn't be more positive," said St George Bank economist Justin Smirk. "It's happening just as the stimulus from the Building the Education Revolution starts to peter out."

The government has committed to spend $14.7 billion on school buildings and $6.6 billion on public housing over two years. But the work will dry up as projects finish leaving the private sector to take up the slack. Private construction slid throughout 2009, going backwards 7.5 per cent...

"Public investment has peaked," said Deutsche Bank economist Adam Boyton. "It's going to wane from here on, making the return to growth in private investment encouraging."

Private residential construction jumped 6 per cent in the quarter after growing not at all over the previous year. Private non-residential building climbed 2 per cent after sliding 17 per cent.

Private engineering work surged 6 per cent led by a 14 per cent jump in Western Australia boosted by the start of work on the $43 billion Gorgon liquefied natural gas project. Western Australia accounted for half of the nationwide growth in engineering work over the quarter and now accounts for one in every three engineering dollars spent.

"This bodes very well the economic growth figures to be released next week," said RBC Capital markets analyst Michael Turner. "The Reserve Bank had been expecting 1 per cent for the quarter, but we are now looking at much higher economic growth, around 1.3 per cent."

"While high, this economic growth is unlikely to it is unlikely to force the Reserve Bank to push up interest rates. It's worried about the worsening run of news out of the US and Europe and its possible ramifications for Asia. Our strategists think United States growth will be utterly anaemic for the rest of the year. Our Reserve Bank could leave rates on hold until 2011."

US figures released Tuesday showed home sales collapsed 28 per cent in July to the lowest point in more than a decade, sparking talk of a double-dip recession.

Published in today's SMH and Age

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