May 30, 2018 / 4:16 AM / 6 months ago

Australia's building activity slows in April, bad omen for economy

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* April home building approvals -5 pct vs -3 pct consensus

* Non-residential building approvals -4 pct in April

* Economists see further house price decline in Australia

By Swati Pandey

SYDNEY, May 30 (Reuters) - Australia’s housing activity slowed in April with approvals to build new homes down more than expected while non-residential permits also slipped in an ominous sign for broader economic growth.

Dwelling approvals skidded 5 percent in April, data from the Australian Bureau of Statistics (ABS) showed on Wednesday, when analysts had expected a fall of 3 percent.

Approvals were still up about 2 percent annually but far from the stellar double-digit increases seen last year.

Australia’s four-year-old boom in home building has supported the country’s A$1.8 trillion economy as it transitioned away from a once-in-a-generation mining boom, but Wednesday’s data suggested the rally was running out of breathe.

Home prices across Australia’s major cities have been easing for successive months since late 2017 on tighter lending standards at banks.

AMP economist Diana Mousina expects prices in the two biggest cities - Sydney and Melbourne - to ease another 5 percent or so this year, with further declines likely next year.

And that will have ramifications for the economy.

“Over the past few years, the strong gains in home prices have allowed households to draw down on savings, which has been positive for consumption,” Mousina said.

“But looking ahead, the savings ratio is unlikely to move significantly lower, which is a constraint for consumer spending,” she added.

“A weakening consumer is a large downside risk for the Australian economy.”

First quarter gross domestic product data is due June 6. The economy grew an annual 2.4 percent in 2017, below the trend rate of 2.75 percent.

Analysts at Swiss investment bank UBS downgraded their house price forecast on Wednesday, expecting values to drop by 5 percent or more over the next year from their long-held view of flat to a 3 percent fall.

The dour outlook means the Reserve Bank of Australia (RBA) will likely keep rates at a record low of 1.50 percent for a long time to come.

“We continue to expect the RBA will hold until at least the second half of next year, but given the downside risks to our housing and consumer outlook, the RBA could remain on hold for even longer,” George Tharenou at UBS said in a note.

“Separately, the surprisingly weaker trend in non-residential building approvals is important to highlight, as if it is sustained it could suggest momentum for business investment is rolling over.”

Approvals for commercial properties such as offices slipped for a second straight month in April to be down 4 percent. On an annual basis, it slumped nearly 20 percent.

Non-residential building approvals have stumbled in nine of the past 12 months.

“The recent downturn in approvals is challenging our outlook for ongoing strength in non-residential activity into 2019,” ANZ economists said. (Editing by Jacqueline Wong)

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