Australia's economic prospects have continued to soften, with hopes of a revival in new-home building dashed for another year and business confidence slumping to its lowest levels since the dotcom crash of 2001.
The Housing Industry Association has slashed its forecasts for growth in dwelling starts for the coming financial year from 2 per cent to zero, warning the new-homes slump would extend into a fifth year.
Also yesterday, the National Australia Bank's business confidence index - showing the corporate outlook on the coming June quarter - plunged into negative territory, down 10 points to minus four. Both surveys blamed much of the gloom on recent interest rate increases.
The cash rate, at 7.25 per cent, is at its highest levels since the mid-1990s as a result of the Reserve Bank's campaign to rein in rising inflation.
The indicators released yesterday also highlighted the widening gap in prospects for different states and sectors of the economy.
The NAB reading, while at its lowest point since the June quarter of 2001, saw confidence in the mining sector rise to record levels, offsetting some of the deep pessimism in finance, insurance and property services.
The HIA quarterly report for March showed relative strength in Victoria, while other states such as Western Australia - where the property bubble has burst - were yet to turn their fortunes around.
The HIA said the most aggressive monetary tightening since 1994 had pushed out the expected national recovery in new-home construction from 2008-09 to 2009-10.
The early promise shown by its upgraded forecast for dwelling starts in 2007-08 would be lost to rising interest rates and higher construction costs the following year. Work would begin on just 154,130 new homes in 2008-09, marginally down from 154,330 this financial year.
The Reserve Bank's fight against inflation might have pushed the sector "a little too far", the HIA report said.
New-home buyers could also face more pain, since the interest rate cycle might not yet have reached its peak, it warned.
"Within the softer official tone from the RBA, it remains their view that the risk of the next increase in rates being up is higher than the next move being down," the association said.
However, HIA chief economist Harley Dale sought to calm fears that an exodus of buyers could force a new and more severe downturn.
New mortgage-approval data released this month for established homes suffered its biggest dive in seven years. Even strongholds such as Melbourne reported an 8.4 per cent fall in median house prices in the March quarter.
Mr Dale predicted only a "moderate cooling in existing house prices", labelling it a price correction rather than market plunge. "Talk of widespread falls in house prices is way off the mark," he said.
The HIA also said it expected strong growth in the renovationssector, which is set to top $30billion this financial year, for the first time.
