Matching the weakness in manufacturing activity has been a further slowdown in investment in the manufacturing industry (Chart 4). Although housing sales and prices have been lifting in recent months, this is yet to translate into a pick-up in housing investment, which is growing at its slowest pace since early 2009. Growth is getting support from better conditions in non-manufacturing industries and continued solid growth in infrastructure investment, but growth in overall fixed asset investment has slowed. Weaker growth indicators combined with recent falls in stock prices and changes in the way the People’s Bank of China manages China’s currency have all contributed to a marked increase in financial market volatility recently (discussed further below). China’s authorities have responded to recent concerns about weaker growth with further cuts to interest rates and the reserve requirement ratio. More investment in infrastructure is also expected to be a key support for growth. For more on HSBC’s view on China see HSBC China Economics and FX Strategy, 25 August 2015. China and an expected Fed move are driving market volatility Together, developments in China and concerns about the impact of a possible increase in the Federal Reserve’s policy rate, expected before the end of the year, have contributed to a significant increase in financial market volatility in recent weeks. Commodity prices have fallen particularly sharply, with copper and oil prices both falling to six-year lows (Chart 5). Iron ore prices have held up better, having fallen sharply earlier in the year. Global equity markets have also seen sharp falls and a substantial increase in volatility. Western equity markets have been volatile, as investors assess the possible impact on global growth of weaker growth in emerging economies, which are under pressure from both falling commodity prices and an expected rise in US interest rates. Asia’s markets have been particularly volatile, as concerns about China’s growth and the Federal Reserve weigh on the region (Chart 6). The RBA’s tactics and commentary We expect the RBA’s meeting to be uneventful, with the central bank likely to remain comfortable that the economy is continuing to grow, that growth is creating sufficient jobs to keep the unemployment rate steady, and that the AUD is now at a level where it is helping to support the rebalancing of growth. The RBA is likely to acknowledge the recent increase in volatility in financial markets; however, the RBA is also to note that it is too early to determine the impact of these developments on the outlook for global growth. We remain of the view that the most likely course for Australia’s monetary policy is that the cash rate remains at its current level in coming quarters. This is particularly the case as the AUD is now providing more support to local growth than previously. However, it does seem likely that the recent developments, particularly the fall in commodity prices, do increase the downside risks to Australia’s growth and, therefore, increase the possibilities that further monetary policy easing may be needed. Click to enlarge PAUL BLOXHAM IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC.
Australian housing investment is growing at its slowest pace since 2009, according to chief economist at HSBC, Paul Bloxham, despite a recent upswing in both building projects and housing prices. In a report by The Property Observer, Bloxham noted that the country’s investors are prioritising investment in non-manufacturing industries; as a result, Australia could experience a decline in new construction schemes.