The markets shrugged off the budget, left the arguing to politicians and fellow travellers and focused on the flood of news yesterday about downgrades, cash raisings and the odd profit.
But it would pay to keep a close eye on the budget and some of the forecasts because one or two economists have a sneaking suspicion about it.
A couple think it’s light on in its forecasts, a bit too optimistic, one or two others think the near term forecasts might be too pessimistic.
Looking at the commentary and the budget statements, in terms of current economic performance, the most important decision taken was to keep the First Home Buyers Grant going at full speed to September, then halving it for the three months to December 31 then ending it.
Given the fire it has lit in home building (in Tuesday’s figures on housing finance and picked up in the commentaries from Goldman Sachs JBWere and UBS), there’s every chance the home construction sector will be still strong a year from now, with more activity happening outside the first home buyers sector.
Non first home buyers and investors have reappeared in both the existing house and non detached dwelling sectors, which could mean more building activity, even in places like the Gold and Sunshine Coasts where the credit crunch has hit hard.
That’s why the economists at Goldman Sachs JBWere caution us to keep an eye on the real economy; the forecasts might prove to be too low and the actual outcomes might see stronger growth.
They reckon the surge in new home lending, which is spreading from the construction sector, to existing homes (yesterday’s AirDaily), could underwrite a rebound for the whole economy by the end of the year.
They wrote yesterday:
"Overall, housing lending data in March is unequivocally strong, with consistent monthly gains since Sept/Oct last year pushing lending for housing up 20% from its trough last year, with lending for new construction (mostly by builders) up an even stronger 32%. Further, the data shows investors – after having been on the sidelines recently – now showing a strong monthly gain.
"The data is consistent with building approvals rising a further 15-20% from current levels (already up 10% over the past couple of months), to about a 140k pace for housing ‘starts’, well above January’s 105k pace.
"Looking ahead, key will be the extent to which the recovery in housing is sustained, given the likely rise in unemployment and changes to the FHOG in tonight’s budget.
"Nonetheless, today’s data add further weight to our outlook for a strong rebound in housing construction in 2H09, and into 1H10."
With those comments in mind, it was probably no surprise that Goldman Sachs JBWere then wrote that "Treasury assumes that the Australian economy will not grow in 2008-09 and will contract by 0.5% in 2009-10".
This, Goldman Sachs said was "unrealistically bearish, particularly in relation to private consumption and dwelling investment".
Also, "There is of course an agenda within this Budget.”First it utilises the depths of the global economic crisis to claw back the Coalition’s policies directed at upper income welfare.
"Secondly the Treasury has low-balled the economic assumptions so that any improvement in economic news flow over the next 2 years can be attributed to sound economic policy and sets the scene for the time frame of the next election.
"From a markets perspective, we expect a muted response. The level of net debt will not trouble Australia’s credit rating. In terms of equities the building and construction sectors appear to be the major beneficiaries via increased stimulus to housing and infrastructure.
"The healthcare sector has some pluses and minuses due to changes to pathology/radiology fees and the well published changes to the private health insurance rebate; while changes to Superannuation are expected to have minimal impact on the wealth managers."
The NAB’s Alan Oster said the bank has similar forecasts to the government (and the RBA) out to 2010/11 – as far out as the NAB is reasonably prepared to forecast.
"At the margin the Government is even more bearish on private investment than NAB, though this is partly offset by stronger public sector demand.
"We on the other hand have larger falls in exports, commodity prices and hence a larger current account deficit.
"At the margin we are more bearish on employment but surprisingly have a marginally lower unemployment rate.
"This may in part reflect timing – we see unemployment rising to 8% by late 2010 and edging higher into 2011 (around 8¼%). The Government’s unemployment forecast rises more steeply, reaching 8¼% by mid 2010.
"We also suspect the Government is being deliberately conservative in its unemployment forecast (as has been the case in the past).
"As noted previously, a big issue relates to what happens after 2011/12.
"It is possible that GDP could sustain rates at or above 4% for some time but one wonders about the wisdom of relying on these types of assumptions as the key means to return the Budget to medium term health."
UBS looked at both the housing finance figures and the budget separately in its client note yesterday. Like Goldman Sachs it saw the housing sector taking off:
"Overall, housing lending data in March is unequivocally strong, with consistent monthly gains since Sept/Oct last year pushing lending for housing up 20% from its trough last year, with lending for new construction (mostly by builders) up an even stronger 32%.
