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There’s more pain on the way for Australia’s borrowers with the Reserve Bank today raising interest rates for the third time in as many months.

As widely tipped, the central bank lifted its key cash rate by 25 basis points to 3.75 per cent following its monthly board meeting. It’s the first time the RBA has lifted rates three months in a row. (Click here for economists’ reaction, including Michael Pascoe and Peter Martin.)

”In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery,” RBA Governor Glenn Stevens said in a statement accompanying the rates verdict. The central bank’s ”gradual” increases in rates will ”work to increase the sustainability of growth in economic activity,” he said.

For a typical mortgage holder on a $300,000 mortgage, today’s rate rise will add about $47 to monthly repayments, assuming commercial banks match the RBA’s move. Officials for most of the major banks this afternoon said their rates policies were under review.

The Reserve Bank has made regular public comments in recent weeks that it sees no need to keep interest rates at ”emergency” levels as the economy rebounds from a slowdown during the past year. Ric Battelino, the RBA’s deputy governor, last week said the economy’s growth is likely to extend ”for a few more years yet.”

More to rises come

Still, the economic data continue to provide mixed readings. A measure of manufacturing activity in November out today showed the sector continues to grow with companies adding jobs, although the stronger Australian dollar slowed the pace of expansion.

Overall building approvals, meanwhile, surprisingly fell 0.6 per cent in October, according to other figures out today. A 5 per cent gain in approvals for private homes was countered by a 19 per cent drop in permits for flats and townhouses.

Even with today’s rate increase, the Reserve Bank’s efforts to tighten monetary policy are likely to be far from over.

”The big change in this statement was their reference to the increases so far as being material,” ANZ’s head of Australian economics Warren Hogan told Reuters.

”I read that as implying that they’re ready to now sit back and watch how these increases affect the economy. And the hurdle for further rate hikes will be much higher than we have seen so far.

“So I think our view that they’re going to 4 (per cent), 4.25 then sit there for much of the year is the right one. There’s every chance they’ll do it in February and March, although I wouldn’t be surprised if it’s dragged out over a number of months.”

JP Morgan’s Chief Economist Stephen Walters agreed that the RBA may make it four rate rises in a row: “With inflation likely to creep up, and the worst in the economy having passed, there is no need to keep rates at very expansionary levels.”

“We think they will again lift rates in February,” Mr Walters

said. ”The RBA does not meet in January, but I think they will hike when they return after the break. The word ‘gradual’ is still there in the RBA statement and I think they will start going slow in lifting after February.”

Before today’s move, investors were betting that rates would rise to at least 4.75 per cent in a year’s time – equivalent to four more rate rises over the period. Three weeks ago, however, the betting was for rates to rise to 5.25 per cent, indicating confidence in the economy’s strength has recently diminished.

The RBA’s board is not scheduled to meet again until next February.

Political view

Treasurer Wayne Swan said the rate rise would pinch household funds.

”This is tough for families…when rates go up it has an impact on the family budget,” Mr Swan told reporters.

He took aim at old comments from new Opposition Leader Tony Abbott that the government’s billion-dollar stimulus had led to interest rates rises.

”That is laughable and it comes from a political leader who is prone to making erratic statements,” Mr Swan said.

”Mr Abbott is in denial of the fact that this country has performed well in the global recession.”

Even with the latest jump, these rates were last seen in 1967, Mr Swan said.

Mild downturn

A year ago, the Reserve Bank was in the midst of a series of deep interest rate cuts as Australia joined other countries in attempting to limit the damage from the global financial crisis.

Last December, the RBA sliced one full percentage point from its cash rate, lowering it to 4.25 per cent on the way to a fifty year-low of 3 per cent by April. After a pause, the central bank has started to lift rates back towards more normal levels as fears of an economic crunch abate.

”The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand,” Mr Stevens said in his statement today.

The jobless rate has been one of the surprises, with Australia’s unemployment holding well below 6 per cent when many had predicted a level in excess of 8 per cent. Business investment has also held up well in large measure due to the sharp rebound in China and India – leaving Australia as one of the few countries to start raising rates.

”Prospects for ongoing expansion of private demand, including business investment, have been strengthening. There have been some early signs of an improvement in labour market conditions,” Mr Steven said. ”The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.”

The RBA believes economic growth ”is likely to be close to trend (in 2010) and inflation close to target.

Market response

In the aftermath of the rates news, the Aussie dollar initially dropped before recovering to about 91.5 US cents in recent trading, close to its level before the RBA statement.

Shares, also turned mildly lower before recovering to be about 0.2 per cent higher for the day with less than an hour of trading left.

Source :   www.theage.com.au

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Industry leaders in Australia are urging the Australian federal government to overhaul its skilled immigration program to address a looming shortage of workers.

Recent changes by DIAC to the skilled migration visa processing times have meant that many hundreds of applicants for visas have been told that they may have to wait up to 3 years and this is slated to impact on several massive projects announced for Western Australia, including the Gorgon gas development, expansion of the Pluto LNG plant and the development of the Mid-West iron ore region including the massive Gindalbie iron ore mine which will need upwards of 1500 workers during the construction stage.

 The recent Australian Financial Review (afr.com.au) has stated that skills shortages are set to intensify in coming years.

The article calls for the Department of Immigration and Citizenship to urgently look at reviewing Australian visa policies to ensure that these shortages can be filled. More immigrants will be needed to work in Australia in industries such as energy, mining  and IT which, according to the review, face a major skills shortage unless something drastic is done to alleviate it.

Major Australian firms such as infrastructure giant United Group have also released warnings to the government that they will be facing skills shortages within 12 to 18 months.

The firm’s CEO Richard Leupen declared that the shortage has been brought about as a result of the tightening of the business visa rules. He says this has coincided with the company’s reduction in training programmes for staff in response to the recession.

In the IT industry, the need is even more acute. A study, commissioned by Microsoft Australia, has found the IT industry will generate $21 billion for GDP by the end of 2013 but any potential growth could be stifled by the shortage of skilled labour.

Bruce Mills, chief executive of IT consultancy firm 3W, says as more IT work becomes available, such as the National Broadband Network, companies will struggle to grow and obtain new projects if the number of skilled workers remains flat.

“What has occurred is that everything that was done to avoid the global financial crisis has sort of spilled over, and so by the time any of the results were felt any issue that caused the crisis is over, and that is what has happened with the tightening of 457 visas.”

Source  :  www.australiamagazine.co.uk

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Initial work at the Chevron-led Gorgon gas project could begin before Christmas if final investment is approved by the three joint venture partners.

The proposed development, which was given final environmental approval today, will create as many as 10,000 jobs at its peak and underpin a major expansion of liquefied natural gas (LNG) production across Australia.

Chevron greater Gorgon area general manager Colin Beckett said a few other formal approvals were needed before a final investment decision was made.

He said he did not want to pre-empt the decision, which should be made “fairly soon”.

But Chevron was committed to the project, he said.

“We now need to just turn our attention to finalising a few other formal approvals which will be of much lower profile,” Mr Beckett said.

Once those are out of the way we will be able to finalise our final investment decision.”

Mr Beckett said that once a decision had been made the next step would be to place purchase orders and contracts for project construction.

He said the company had already committed to $2 billion of contracts.

“By Christmas we would be starting to do some of the initial work on Barrow Island while in other places we complete our design and get on with the procurement activity,” he said.

“So we’ll be making early strides there and by the end of next year we’ll be working pretty flat out on Barrow Island itself.”

Accommodation for 3,300 fly-in, fly-out workers will be included in the construction phase, which is expected to create 7,000 jobs for people working on the project and a further 3,000 in spin-off employment.

Mr Beckett said the project would draw labour from across Australia.

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