While the economy looks better than it did even a month ago, according to the NAB, a much broader base of demand is emerging.
But that continuing improvement won’t be without some hiccups.
Most notably housing where it is now saying that house prices could fall in 2010.
That is not a line or forecast you’ve heard elsewhere.
The general line for most forecasters is for home prices to rise next year, even though the impetus from the first home buyers’ scheme will ease.
Prices have risen strongly so far in 2009, especially in the first half.
According to the Australian Bureau of Statistics house price index, home prices are up around 6% in the year to September and 4.2% in the three months to September alone.
Now the NAB says there’s a chance that upward price pressure will ease next year.
Here’s the NAB’s reasoning in yesterday’s survey report.
The bank said that in an environment of under-building, the First Home Buyers Scheme and low rates, house prices have recently jumped significantly – and are now up around 6½% on this time last year.
"Interestingly, compared to our housing price model (key determinants being: population growth, real rates, unemployment, and the state of the building cycle), house prices slowed more than expected and have now essentially returned to the model-implied levels.
"In the near term, we expect to see continued strength but that fades in the face of higher unemployment and an implicit sharp rise in real rates (from negative to over 2% in our forecasts).
That would imply a small fall in house prices during 2010 (around 5%).
"The combination of a continued undersupply in housing and relatively less strong housing price market is however expected to see moderate gains in new dwelling activity in 2010 – with investment in new dwellings increasing by around 12% over the year to Dec 2010.
"With no expected withdrawal of the fiscal stimuli, public sector demand will continue to strongly support economic activity – and we still expect public sector demand to accelerate to around 5¼% per annum during the forecast period.
"However, we now see the declines in private sector demand as more similar to the early 2000 slowdown than the 1990s recession
"Against that business is no longer in active job shedding mode and the school repair program/infrastructure initiatives are switching the drivers of growth away from retail/consumption spending."
The NAB said that looking forward, while unemployment look better than previously assumed, lower hours worked and the passing of government handouts will see very modest consumption growth for the next 6 months.
"Indeed our forecasts are for negative consumption growth in Q3 and a flat outcome in Q4.
"Thereafter, we see a moderate return to growth with consumption up by around 3% during the year – with higher wealth and improving incomes offsetting rising rates.
"On a 12 months to basis, consumption only starts to reaccelerate from mid 2010 – albeit the Government payments avoided a much harder landing.
While it is clear that a good deal of growth was brought forward by the fiscal package – especially in consumer spending – the Survey points to sustained growth in demand in Q3 and now into Q4.
To an extent, that demand strength was met by running down inventories and resorting to imports (especially in Q3).
The return to a build up in inventories and increased capacity utilisation, on the other hand, points to a broadening in the recovery process.
However at this stage we see little sign that business is fundamentally inclined to boost investment (other than in response to initiatives such as depreciation allowances).
"As noted previously, while business is more confident there is an unusual disconnect between confidence and willingness to invest.
"Also, as seen from the Survey, there is a marked reluctance to use credit to fund new capital spending.
"Thus while the lows associated with past collapses in confidence and capacity have been avoided, our expectation is for little real growth over the next year – with a return to only modest real growth from mid 2010
" That would see business investment growth through the year in Dec 2010 of around 3% – roughly offsetting the falls during 2009. "
Turning to the states, the NAB said that up until recently, the kick-up in confidence was very similar (both in change and level terms) across states.
"It now appears that Western Australian confidence has accelerated sharply on the back of better global conditions (albeit mining is not the driver one might have expected).
"South Australian confidence eased back in October but remains broadly on par with other states.
"In marked contrast to actual outcomes, Western Australian conditions continue to lag other states – and if anything the gap seems to be widening.
"The most recent trends also point to very robust conditions in Victoria (now the best performing state).
"The other strongest performers are NSW and, as noted previously, South Australia."
