The continuing rebound in economic activity might produce another rise in interest rates a week today but it’s also having a positive impact on the states with growth and activity switching away from the resource boom areas of WA, Queensland and the Northern Territory.
At the same time figures yesterday from the Housing Industry Association showed an improvement in new home sales in February, but they also confirmed just how depressed the new homes market really was.
The HIA said a recovery in NSW pushed new home sales up 2.9 per cent in the month as buyers took advantage of stable interest rates.
New home sales totalled 8,193 dwellings, according to the HIA which said sales in NSW rose almost 17 per cent from January.
Sales of private ‘detached’ houses rose by 3.9 per cent, while sales of units fell by 4.2 per cent, the HIA said.
Western Australia had the second-fastest rise in sales volume with an increase of 11.2, while sales fell 3.4 per cent in Queensland.
But the apparent good news was just that: apparent.
February’s sales volumes were 5.2 per cent lower compared with February 2006 while in NSW sales in three months to the end of February were 21 per cent down on the figure for the three months to February 2006.
So housing still has a way to go to recover, especially in NSW but a rate rise next week would be the last thing the industry would want.
But according to the National Australia Bank the so called two speed economy is starting to disappear with the slower south eastern states picking up momentum.
In its latest look at the states the NAB said that the minerals and energy boom (again, while still present) was starting to lose impetus and the resource-rich areas (WA, NT, Qld) are no longer being pump-primed to the same degree.
“Moreover, the benefits of the boom have partly flowed to the South-East (of the continent) through various mechanisms – in particular, fiscal stimulus and equity prices.
“Government revenue has increased and the benefits partly reinvested in the South-East and seen lower personal income taxes.
“The business and financial services industry, which is primarily based in the South-East, has been given a fillip with strong corporate profitability, takeover activity and high equity markets – all partly resulting from the boom.
“Manufacturing and other services (NSW, Victoria, SA) continue to expand at a slower pace, due to lower returns and, to a lesser extent, lost competitiveness to China and others.
“On the other hand, non-resource-related activity has seen some recent improvement from domestic sources related to the boom and they’ve continued to readjust to the higher $A.
“Looking forward, poor seasonal conditions, as well as the lagged effects of rate rises will be a drag on growth across all states.
“We expect that commodity prices will peak during the next year and fall thereafter.
“Thus that the positive effects of the boom, while still present, will continue to ease in the resource-driven areas.
“At the same time, weaker commodity prices will eventually see the exchange rate depreciate, giving the manufacturing and services-driven areas a competitive boost.
“The differing performance of the States is expected to continue to converge as these trends evolve. The timing and extent of this convergence remains problematic – highly dependent on external growth, commodity prices and the policy response (both fiscally and monetarily).
“Drought conditions continue to affect most states, with conditions remaining poor in western WA, southern SA and from northern Tasmania through to southeast Queensland.
“While there was little alleviation in conditions during the summer months, parts of southern WA, central SA and western Queensland reported at least average rains over the three months to March (see map below).
“The outlook appears brighter however, with the Bureau of Meteorology confirming that the El Nino has ended and the chances of accumulating at least average rain for the coming three months are close to 50% (see map below). Significant rains are needed to remove deficiencies however, with rainfall deficiencies affecting much of southern and eastern Australia over the past twelve months.
“The bureau has stated that falls over the next three months would need to be in the highest 10% of the historical record for deficiencies to be removed by May.
“Farm production in each state has been negatively impacted. Nationally the winter crop was slashed by 60%, with crops particularly affected in Victoria, NSW and South Australia.
“While volumes fell significantly in WA, WA produced half the national winter crop (compared to the five year average of around 35%). Prospects for summer crops have deteriorated, with summer crop production now expected to fall by around 60%.
“While the continuation of dry conditions has impacted sorghum plantings, critically low water allocations has cut rice plantings by around 90% and cotton plantings by around 40%.
“Lower water allocations have also impacted the dairy and horticulture industries, with significant rainfall required in catchments to improve growth prospects for industries relying on irrigation.
“While crop production is down significantly, meat production is expected to rise in line with increased slaughtering. Data from the ABS indicates that in 2006 beef slaughtering was up 4.5% and sheep slaughtering was up 13% compared to 2005. “Relatively favourable seasonal conditions in northern Australia have limited the impact of the drought on the beef industry, although sheep numbers are forecast to drop to their lowest level since 1947 due to 67% of the flock being situated in drought impacted southern states.
“Looking to 2007/08, data from the last 45 years would suggest that there is only a small chance of continued dry conditions adversely a
