Postcard from Tasmania

• This week we report on trends in the Tasmanian economy, following a visit there for presentations last week. Overall, Tasmania continues to experience relatively favourable economic conditions, especially in the south of the state, which has been evident in a declining unemployment rate.
• The housing market has strengthened due to a pick-up in population growth, in turn the result of a reduction in the amount of outward net interstate migration (residents leaving the state). Some of this reflects the end of net outflows to WA and QLD likely associated with the mining boom, while net inwards migration from NSW has picked up, as is typical during times of strongly rising house prices in NSW.
• With house prices rising, vacancy rates declining and a previous drop in building approvals, it’s likely that residential construction activity should begin to strengthen. Tourism is another important industry for Tasmania which has been performing relatively well, again with the south outperforming.
• In markets last week, the main developments were weakness in the EUR after softer than expected inflation readings, but stronger oil prices and weaker iron ore prices (the latter now down to around $US80 per tonne). The $A held up relatively well (until this morning’s soft retail sales release) against the slightly stronger US$, while bond yields eased a little further on the back of lower global yields.
• Importantly, Australian regulators acted to further tighten lending standards for housing, mainly by restricting the flow of interest-only new loans to 30% of total new housing lending. The regulator has also directed that lenders set strict rules for interest only lending at LVRs above 80%. These moves could act to further slow investor and overall housing lending, but did not include a quantitative reduction in the overall speed limit for investor housing as had been feared (currently set at 10% a year).
• It’s a big week for markets with most focus in the US on the ISMs (Monday and Wednesday), Fed Minutes (Wednesday) and Non-farm Payrolls (Friday). These will guide as to the strength of the US economy and therefore enable markets to refine the extent to which the Federal Reserve might further raise interest rates this year (NAB expects two further increases). The ECB Minutes (Thursday) may also garner attention given recent comments from German officials on tapering current monetary accommodation. Domestic focus will be on the RBA Board Meeting tomorrow – though no interest rate adjustment is expected – and whether any references are made to APRA’s new macro-prudential measures announced on Friday. There are also three RBA speeches with Governor Lowe’s remarks at a Tuesday RBA Board dinner likely the highlight as they may provide greater detail on the Board’s current thinking. NAB continues to expect an extended period of unchanged cash rates in Australia with rising US interest rates likely to conspire to bring about a weaker $A towards US$0.70 in a year’s time.

Also attached is a more detailed report on the Tasmanian economy recently produced by NAB Group Economics.

• Australian Markets Weekly: 3 April 2017 (PDF, 636kb)
• Tasmania Economy (PDF, 448)