Construction to add to economic growth

(Australian Associated Press)

The Reserve Bank of Australia says the construction of non-residential buildings will likely provide a boost to economic growth by the end of 2018.

Non-mining business investment has failed to fill the gap left by declining mining investment in recent years, but when the RBA left the cash rate unchanged at 1.5 per cent on February 7, it said business investment would continue “gaining momentum”.

Analysts and economists queried the central bank’s comments at the time, but the RBA has laid out its case in the official minutes from that board meeting, released on Tuesday.

The central bank says non-mining business investment rose five per cent in the year to September, and recent data on approvals of non-residential buildings indicate a pick up.

“While non-residential building construction was likely to remain subdued in coming quarters, the increase in approvals over the past year across the range of sectors suggested that non-residential building construction would contribute to GDP growth towards the latter part of the forecast period,” the RBA minutes said.

Household consumption growth was likely to remain subdued, the central bank also said, with consumers’ perceptions of their own finances at an average level.

Spare capacity in the labour market is also weighing on wages, which is affecting consumption growth, the RBA said.

“Any increase in uncertainty that households have about their future income growth could lead to lower consumption growth, particularly for those households servicing sizeable debts,” the minutes said.

Wages could still rise more quickly than forecast, the RBA said, “particularly if employees were to demand wage increases to compensate for the period of low wage growth in recent years”.

Inflation is expected to gradually improve.

The RBA said conditions in the housing market were strengthening in Sydney and Melbourne, while increased supply and low population growth were weighing on rents and apartment prices in Perth and increasingly Brisbane.


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