Dwelling approvals up, manufacturers still struggling, pressure mounts on RBA to cut rates: Economy roundup

The housing market continues to be one of the few sources of good economic news, with new figures from the Australian Bureau of Statistics showing total dwelling approvals grew 7.8% in February, the first rise since June 2008.

Housing approvals in the private sector grew by a seasonally adjusted 0.1%, while other dwelling approvals jumped 34.1% after a 17% fall in January.

But the good news ended there.

Manufacturing struggles

Manufacturing activity in Australia has improved from record lows during March, but employment, production and new orders all remain weak, according to new figures.

The Australian Industry Group/PricewaterhouseCoopers Performance of Manufacturing Index increased 1.7 points to 33.4 in March, but remains below the 50-point threshold separating growth from contraction.

“The PMI suggests that economic conditions have not bottomed in the economy, and that the outlook remains uncertain,” Australian Industry Group chief executive Heather Ridout said.

“Production, capacity utilisation and exports remain in the doldrums, with the new orders reading not indicating any early pick up. As a result, employment fell across the board while wages growth continued to ease.”

Global leaders meet on economy

Overseas, the World Bank has launched a $US50 billion program to boost global trade after the Organisation for Economic Co-operation and Development predicted the world economy will contract faster than expected.

A new report from OECD has said the 30 economies of its member countries will contract by 4.3% in 2009, losing 25 million jobs during 2009-10 in the process.

Chief economist Klaus Schmidt-Hebbel has said that stimulus packages introduced by countries such as the US, Germany, Japan and Australia should help boost growth in 2010.

The warning comes as a draft G20 communique obtained by news group Reuters says that world leaders have agreed to avoid protectionist measures that would damage international trade.

Meanwhile, Prime Minister Kevin Rudd has said that the G20 summit in London must focus of economic recovery strategy and must aim to double IMF resources.

In a speech at a business lunch, Rudd has said that there are still major risks to the global economy. “The first major risk comes from a potential economic collapse of emerging markets,” he said. “The second major risk to global recovery is the process of deleveraging.

“We should aim to double and if necessary triple pre-crisis levels of IMF resources.”

Rudd has also said that the G20 summit will be judged by whether it restores confidence to the global economy.

“The London G20 must make progress towards a global strategy for economic recovery,” he said. “The summit will be judged on one overarching outcome – whether leaders can agree on a … plan that helps to restore confidence to a global economy sorely lacking in confidence.”

Pressure mounts on RBA

The rash of bad economic news – including data showing that annual credit growth has slowed to 5.4%, with business credit falling by 0.6% in February – could force the RBA to cut rates when it meets next week.

OZ Minerals

Meanwhile, mining giant OZ Minerals has signed a deal with Chinese group Minmetals that will see it sell most of its assets, including a mine that forced the Government to block another deal between the groups.

The company was due to pay $1.3 billion in debt by yesterday, but the company requested a trading halt as it continued negotiations with Minmetals. 

“While this is a structurally different proposal to the previous cash proposal from Minmetals of 82.5 cents per share, we believe it represents an attractive offer for OZ Minerals and our shareholders,” chairman Barry Cusack said.

“Importantly, it also provides a complete solution to OZ Minerals’ refinancing issues.”

Shares fall

The Australian sharemarket has opened lower after the bad news from the manufacturing industry. The benchmark S&P/ASX200 index was down 11.5 points or 0.32% to 3570.6 at 12.07 AESDT.

Overseas, Wall Street enjoyed rises due to investors in the technology sector. The Dow Jones Industrial Average gained 86.9 points or 1.16% to 7608.92.

General Motors says it will continue to shut down plants and scrap more jobs in an effort to combat the threat of bankruptcy.

New chief executive Fritz Henderson, who replaced former chief executive Rick Wagoner after he was forced out by the Obama Administration, says the company needs to dig “deeper” in its restructuring efforts.

“By no later than June 1, if we’re not able to accomplish this outside bankruptcy, we’ll be in bankruptcy. It’s pretty clear. The Government was unequivocal,” he said.