Tuesday, April 08, 2008

"Cracks" in the Australian economy

The ANZ Bank has dramatically widened its provision for bad debts as a major investment bank has warned of “cracks appearing” in the Australian economy.

The ANZ yesterday told analysts it would aside $975 million to cover bad debts in the first half of this year, more than four times the value of bad debts it had booked in the same period a year before.

The bank's chief executive Mike Smith said he wanted to ensure that it appropriately recognised “the ripple effects of the global turmoil”.

The ANZ Bank has dramatically widened its provision for bad debts as a major investment bank has warned of “cracks appearing” in the Australian economy.

The ANZ yesterday told analysts it would aside $975 million to cover bad debts in the first half of this year, more than four times the value of bad debts it had booked in the same period a year before.

The bank's chief executive Mike Smith said he wanted to ensure that it appropriately recognised “the ripple effects of the global turmoil”.

It was selling off the portfolio of shares tbehind the $650 million it had lent the failed stockbroker Opes Prime and was extending the bad debt provision for losses expected elsewhere.

The regular count of nationwide job vacancies produced by the ANZ yesterday showed that advertisements slid 0.7 per cent in March, the second consecutive monthly decline. Newspaper ads fell by 11 per cent.

The bank's trend measure of monthly job advertisement growth, regarded as a leading indicator of employment growth, has fallen for four months and is at its lowest level since mid 2003.

“It is beginning to look as if employers’ demand for new recruits is now waning after an extended period of very strong demand for labour. This is consistent with other indicators of economic activity that suggest domestic demand is now in the process of moderating under the weight of higher interest rates, lower share prices, and heightened concerns over decelerating global growth and global financial strains,” said the ANZ's Tony Pearson.

Building approval figures also released yesterday barely grew in February and in trend terms were down one per cent, the biggest monthly fall in 15 months.

By value, approvals fell more sharply, sliding 14.4 per cent in February – the biggest decline in more than four years – as the size of projects were wound back.

“The residential building industry is being knocked about by higher interest rates, and a lack of interest from investors,” said Savanth Sebastian of Commonwealth Securities.

At TD Securities, the senior strategist Joshua Williamson said that he could “hear the economy slowing”.

“Cracks are appearing in the economic data,” he told his clients in a briefing note. By the end of the year both inflation and employment will have fallen.

TD securities is expecting the Reserve Bank to cut official interest rates before the year is out.

The Opposition Leader Brendan Nelson said on radio that he thought the Reserve Bank had increased interest rates too far.

“I know this is a sensitive sort of area but they considered a 50 basis point rise, that’s half a percentage point rise, earlier in the year,” he said.

“On this listening tour small business people have said to me that they can pick, almost pick the day, three weeks ago when consumer confidence, demand dropped, on average about 20 per cent, is the way they see it.”

The employment figures due out on Thursday this week are not expected to show evidence of a turndown. Employment reacts to other economic variables with a lag.