Tuesday, July 24, 2012

After mining investment will come housing investment - BIS Shrapnel

Let's hope

The other side of Australia’s mining investment boom won’t look so bad according to new long-term forecasts released today by BIS Shrapnel.

The research firm says dwelling investment is about to take off in most of the country and investment in the two thirds of the economy not exposed to international trade is not too far behind.

“Mining investment will soon stop growing,” says senior economist Tim Hampton. “It should remain high but it will stop growing.”

“In its place we see an upswing in residential property investment from later this year.”

“The carbon tax has come and gone and households have realised it isn’t the end of the world; in fact they’ve more money in their pockets than they had.”

Mr Hampton says the return to housing investment will be driven by chronically short supply in NSW, Queensland and Western Australia.

“Particularly in NSW we’ve gone for so long without building houses that the vacancy rates are so low the rents are starting to move aggressively. Victoria is an exception... It has had better policies in place, meaning it doesn’t have the pent-up demand.”

“When dwelling investment picks up it’ll also mean more demand for accountants and lawyers, and NSW simply hasn’t been building the commercial property. We haven’t had enough non-mining business investment to underwrite even moderate levels of demand, so as demand recovers we’ll see big capacity constraints.”

BIS Shrapnel is forecasting economic growth of 2.9 per cent per year for the next five years climbing to Australia’s long-run average of 3.2 per cent after 2017.

It says the biggest risk to its forecast is a collapse in energy prices toward the end of the decade, big enough to bring on a recession.

“We are not so much worried about a slowdown in Chinese demand. We can handle that because it will bounce back up. What would be worrying would be an unexpected jump in supply, particularly of liquefied natural gas. That would permanently depress prices and stall investment. It’s not our central forecast, but it’s a risk,” Mr Hampton says.

Separate Bureau of Statistics figures released ahead of Wednesday’s inflation result show producer prices contained. The index for the final stage of production rose 0.5 per cent in the June quarter, producing an annual increase of just 1.1 per cent, the lowest for two years.

In today's Sydney Morning Herald and Age

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