WINDOWS Magazine Autumn 2016 - Page 24

eco n o m y global unrest and domestic housing activity Harley Dale Chief Economist, HIA & Australian Construction Insights T he 2016 year commenced with a marked deterioration in economic sentiment. The primary catalysts were the (not mutually exclusive) concerns over the outlook for the Chinese economy and a sharp decline in oil prices, together with heightened geo-political risks and tensions. A litany of gyrations on and concerns regarding the international economy resulted from this poor start to 2016. Global equity markets weakened considerably. Global bond markets rallied. In mid-January the International Monetary Fund (IMF) lowered its world economic growth forecast – as I portended at the beginning of January – largely due to perceived downside risks to the Chinese economy. There is now an elevated focus on the amount of debt that has flowed into developing economies in recent years in search of higher returns. There is a greater concern that the debt burden has become too high. This in turn has increased the risk of another euro banking crisis given that much of the debt has come from the still fragile European banking system. Within this international environment, expectations of below-average economic growth for Australia in 2016 became further entrenched, thereby increasing conjecture about further cuts to the Official Cash Rate (OCR) in Australia from its current level (held since May 2015) of 2.00 per cent. We learnt from the first RBA Board meeting for 2016 in early February that the Bank is in wait and see mode. Should any deterioration in global economic and financial conditions derail an improving Australian labour market and dent economic growth prospects here at home, then we will have an OCR of 1.50 per cent by the end of the year. At this stage, that outcome appears unlikely. 22 Australian Window Association Autumn 2016 Against this economic backdrop, the outlook for new home building in 2016, especially the first half of the year, remains healthy. This is primarily due to the large pipeline of work yet to be started for medium/high density dwellings. The short term outlook is also for construction of detached and semi-detached dwellings to hold up at above average levels. There are larger than usual geographical differences in new housing conditions when we delve below the national surface, as has been the case all cycle. While new dwelling commencements are likely to fall almost everywhere in 2016, we will still be able to characterise this year as a strong o