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Economic conditions

Australia's Reserve Bank to Keep Interest Rates on Hold Amid Sharp Slowdown in Building Approvals and Retail Sales

Strategic Insights

— 1 min read

Weak building approvals and disappointing retail sales in October have led economists to predict that Australia's Reserve Bank will maintain its interest rates for the foreseeable future. Building approvals fell 2.4% in October, with a 13.5% cumulative fall over the past three months, while retail trade declined 0.7% in October, well below expectations.

Key Takeaways:

  • Building approvals fell 2.4% in October, seasonally adjusted, to their lowest level since June 2001, with a cumulative 13.5% fall over the past three months.
  • Retail trade declined 0.7% in October, seasonally adjusted, well below expectations of a 0.8% rise.
  • This marks the seventh consecutive monthly fall in building approvals, with a moderate trend in the housing sector.
  • RBC senior economist Su Lin Ong said the fall in building approvals was driven by the volatile "other" component, primarily apartments, but the key private sector house component rose modestly after six consecutive monthly declines.
  • Retail sales have disappointed for five consecutive months, despite factors such as tax cuts, a strong labor market, and buoyant consumer confidence.
  • AMP Capital Investors senior economist Bob Cunneen noted that the soft retail sales data was unusual, reflecting very weak food, clothing, and department store sales.
  • The October spending declines were concentrated in two states - Queensland and WA - which were both down 2% for the month.
  • Commonwealth Australia Bank senior economist Michael Workman said the retail data for department stores, clothing goods, and foods had been solid over the previous few months before October turned soft.

Statistics:

  • Building approvals fell 2.4% in October, seasonally adjusted.
  • The cumulative fall in building approvals over the past three months was 13.5%.
  • Retail trade declined 0.7% in October, seasonally adjusted.
  • Total credit provided to the private sector rose by 1.2% in October.
  • Housing credit grew by 1.0% in October, seasonally adjusted.

Sources:

  • Australian Bureau of Statistics
  • Asia Pulse
  • Reserve Bank of Australia
  • AMP Capital Investors
  • Commonwealth Australia Bank
  • RBC Economics

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