Rate cuts flagged on building slump

BUILDING approvals have dived by more than five times market forecasts, with some economists now predicting a rate cut by the end of September.

Rate cuts flagged on building slump

BUILDING approvals have dived by more than five times market forecasts, with some economists now predicting a rate cut by the end of September.

Australian building approvals fell 5.7 per cent to 12,495 units in March, seasonally adjusted, from a upwardly revised 13,244 units in February, the Australian Bureau of Statistics said today.

In the year to March, building approvals fell 0.7 per cent.

The market forecast was for building approvals to show a 1 per cent fall in March.

Lehman Brothers chief economist Stephen Roberts said the small recovery in building approvals in the second half of 2007 had now been wiped out, which made a rate cut in the second half of this year more likely.

"Quite clearly, it's a very weak number," he said.

"Clearly, housing activity is weak.

"The issue is, 'At what point does the Reserve Bank look at lower interest rates?"

The private sector houses measure was down by 5.8 per cent in March, to 8611 homes, and was 1 per cent lower over the year.

Mr Roberts said the latest building approvals numbers, which feed into building activity, were a sign of a slowing economy.

"It's another factor that economic growth is coming back," he said.

"That will cap demand-side inflation pressure and inflation comes down."

Commonwealth Bank of Australia chief economist Michael Blythe said the weak building approvals numbers would encourage the Reserve Bank of Australia (RBA) to leave rates on hold in the near-term.

"It's another day, another weak number," he said.

"The evidence is there that the level of rates are starting to bite but there's still plenty of evidence we have issues with inflation.

"It's a delicate balancing act for the Reserve Bank deciding what to do next week.

"The idea they'll sit on their hands for a while is emerging as the right idea.

"If rates are going to change this year, it's still up."

Mr Blythe said the weakness in building approvals could have been exaggerated by the Easter break delaying the ability of local councils to give projects the go-ahead.

Private house building approvals were down by 21.8 per cent in South Australia during March alone.

"That's just an extraordinary number. I know the smaller states tend to be volatile," Mr Blythe said.