Away from the booming mining regions, Australia’s economy is still struggling, new figures show.
Building approvals dropped 10.7 per cent in October while retail sales grew by just 0.2 per cent, according to data released by the Australian Bureau of Statistics on Thursday.
Both figures were weaker than expected.
HSBC chief economist Paul Bloxham said the figures showed the contrast between the mining and non-mining sectors.
“Retail is looking like it is growing modestly, housing is weak and the mining sector is booming,” he said.
“Australia’s economy is multi-speed and the divergences between the strong mining-exposed parts and the weaker less mining-exposed parts are becoming more pointed.”
The latest data also showed resource-rich Western Australia continued to pull ahead of the rest of the country as the only state to record an increase in building approvals during the month.
It also played a significant role in the growth in retail spending, with sales there up 1.6 per cent while New South Wales, Queensland, Tasmania and the Australian Capital Territory suffered declines.
Commonwealth Bank economist James McIntyre said the Reserve Bank of Australia’s decision to cut interest rates in November could lead to an improvement in retail sales in that month.
“The October retail figures pre-date the Melbourne Cup day rate cut, which has the potential to bolster retail activity in the lead up to the Christmas period,” he said in a statement.
However, it was the poor building data, which indicated a weakening housing sector, which most alarmed analysts.
ICAP senior economist Adam Carr said the data pointed to nervous consumer sentiment which was feeding on global economic uncertainties.
“I think confidence is shot – in October, we started to see a serial deterioration in Europe, and I think that’s weighed on sentiment,” he said.
Most economists did not believe the figures added to the case for the RBA to cut interest rates next week.
The Commonwealth Bank’s Mr McIntyre said a rate cut was possible but it would depend more on global conditions, especially the European debt crisis, than domestic data.
“Today’s soft retail sales outcome doesn’t pave the way for an RBA rate cut in December, but it won’t stand in the way of one either,” he said.
“Developments in Europe remain the key to near term policy moves.”
HSBC’s Mr Bloxham said he expected the RBA to maintain the cash rate at its present level of 4.5 per cent.
“We think the domestic economy is still consistent with the RBA staying on hold,” he said.
“The global risks are obviously heightened and could see them potentially cutting, but on balance we think they will be on hold next week.”
