Australian economic developments

This week the Federal Government released an Economic Statement which contained its latest expectations for the Australian economy. Real GDP and employment growth  forecasts for 2013-14 were revised down by 0.25 percentage points to 2.5 and 1.0 per cent respectively, while forecasts for 2014-15 were unchanged. Unemployment rate forecasts for 2013-14 and 2014-15 were revised up by 0.5 percentage points, reflecting the weaker outlook for GDP, employment and the participation rate. This represents a significant downgrade in the outlook for the labour market, with higher unemployment and weaker employment growth now expected from here. And importantly for the Federal Budget, nominal GDP forecasts for 2013-14 and 2014-15 were also revised down significantly, mainly reflecting a bigger than expected fall in the terms of trade and export earnings. Nominal GDP is now expected to grow by 3 ¾ per cent in 2013-14 and by 4 ½ per cent in 2014-15 (previously expected to be 5 per cent in 2013-14).

 This week also saw the release of a number of leading indicators of construction activity. The construction of a new house or apartment typically marks the end of a long process which can include the release of land, the rezoning of land, obtaining building approval, finance approval, and then finally commencing construction. Building approvals data from the ABS therefore tends to lead actual residential construction activity by between six and 12 months. The overall number of dwelling units approved declined by 6.9 per cent in June, and by 4.3 per cent in May, after rising strongly in April. This volatility has largely been due to “other dwellings” (units, townhouses etc.) which fell by 12.6 per cent in June and 15.4 per cent in May, after rising by 27.6 per cent in April. The trend measure of apartment approvals, which goes someway to abstracting from the volatility of the data, is currently 6.4 per cent lower over the year, suggesting that momentum in apartment approvals has slowed. Building approvals for houses have held up better in recent months. Approvals fell by 1.2 per cent in June, though rose by 1.8 per cent in May, and are now 9.9 per cent higher over the year.