Short term uncertainty for Australia’s economic outlook

May 26, 2011 / By  

The Australian economy stalled in Q1 2011; it may even have contracted. We will find out when the data are published on the 1st of June 2011. If the economy did contract, it will be only the third quarterly contraction in the last seventeen years. The weakness can be largely sheeted home to natural disasters. The Queensland floods and the earthquake/tsunami in Japan are both negatively impacting Australia’s exports. The impacts are hard to measure and as a result economists disagree about the likely year-end GDP growth figure. In March 2011, Consensus Economics published an unusually wide range of forecasts for 2011, ranging from 1.7% to 4.0% p.a.

The uncertain outlook poses particular difficulties for forecasting commercial property markets over the short-term. It should be noted that even prior to these natural disasters, there were already sectors of our ‘multi-speed’ economy which were showing signs of weakness. The retail sector has been deteriorating since mid-2009 and this has already started to have an effect on the retail rental growth recovery. Also, the housing market appears to be weakening; demand is softening and the expected upturn in residential construction continues to be postponed. These two sectors are key drivers of growth in the Australian economy. The slowdown in housing is also expected to delay the recovery in the retail bulky goods sector.

A range of factors have led to a strong appreciation in the AUD, particularly in the last few months. Import volumes rose quite significantly through 2010 and this trend is likely to persist given the strength of the AUD. Rising imports have positive implications for the industrial warehousing and logistics sector, particularly precincts well located with close proximity to ports and other key infrastructure.

Businesses looking to make long term office accommodation decisions are likely to look through the short term economic weakness although it may add an element of cautiousness to the decision making process and could delay expansion plans or cause leasing transactions to take even longer to conclude. However, local business surveys have shown confidence and conditions remain positive and hiring is likely to continue.

While the headline GDP figures will probably paint a pretty uninspiring picture, employment gains in 2010 and Q1 2011 were strong. There have never been as many Australians in jobs as there are today, and wages have never been higher.

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