MNI RBA Heath: Confident About NonMining Invest Sustainability

--Dwelling Investment No Longer Contributing To Growth

By Sophia Rodrigues

     SYDNEY (MNI) - Dwelling investment is no longer contributing to Australia's

growth but non-mining business investment has become a more important driver and

the Reserve Bank of Australia is now more confident about its sustainability,

RBA's head of economic analysis department Alexandra Heath said.

     Heath made the comments in a speech at the Urban Development Institute of

Australia event in Wollongong Thursday.

     Apart from non-mining investment, the contribution to growth from the

public sector has also increased, Heath said.

     The RBA's central forecast is for growth to be above 3% over 2018 and 2019,

and this should lead to a further gradual reduction in spare capacity and a

gradual increase in wage and inflationary pressures, Heath said, reiterating a

view previously expressed by the RBA.

     The composition of growth has, however, changed with the drag from falling

mining investment diminished, public sector and non-mining investment making a

contribution and dwelling investment no longer contributing.

     Most of the drag from falling mining investment on growth will be done by

early next year, Heath said.

     "The contribution to growth from the public sector has also increased. The

other two points I want to highlight are that there has been a significant

pick-up in the contribution of investment by non-mining firms, but that dwelling

investment is no longer contributing to growth," she said.

     Heath said that back in 2015 the RBA's discussion of the risks around the

forecasts highlighted the weakness in non-mining business investment but now

they are more confident about a sustainable pick-up.

     The rest of Heath's speech focused on developments in the housing market

where she noted that despite easing off, dwelling investment is still expected

to remain at a high level, particularly in New South Wales and Victoria.

     She also noted that apart from household formation and population growth,

interest rates and changes in lending standards are the main drivers of housing

demand.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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