Firms in the property sector remain positive about market conditions into the new year, states the ANZ-Property Council Survey for the March 2018 quarter.
“While confidence dipped slightly from last quarter’s peak, we are encouraged by the convergence being seen across all of the states and territories, as the business environment continues to improve in the mining areas,” said ANZ economists Daniel Gradwell and David Plank.
The construction outlook is increasingly positive, and several industries are reporting the strongest outlook on record for construction activity, in line with recent data. “It’s not just housing any more – the pipeline of commercial property is also significant.,” the economists said.
Despite the positive outlook for economic growth and the jobs market, property businesses are not convinced that interest rates will rise this year. The majority (70%) believe interest rates will remain unchanged over the next 12 months, compared to 40% as recently as June 2017.
“This likely reflects wages growth remaining subdued, and inflation which is still below the RBA’s target,” Gradwell and Plank said.
ANZ feels differently. The bank believes the Reserve Bank will hike the cash rate twice this year, as it becomes “more comfortable that wages appear to be trending higher.”
“In our view, the risks to the growth outlook are relatively balanced, although the risks to the wage and price inflation outlook appear to be on the downside,” the economists said. “This is a challenge for our expectation that the RBA will tighten in 2018.
“While we don’t think that the Bank requires materially higher inflation before it lifts the cash rate off the low of 1.5%, we do think the Bank will need to be quite confident that inflation is set to move back toward the 2-3% target band. Hence the trajectory of the unemployment rate and wage inflation will remain critical for the Bank’s deliberations.”
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