Outlook lifts… ATO guidance on super… Brisbane property hots up… Small-cap moves… Banks use the net to chase SMEs… Economic roundup

Economic outlook lifts – but what about interest rates?

National account figures released yesterday paint a positive picture of the economy, but analysts are divided on whether the lift to 1% GDP growth for the December 2006 quarter means interest rates are more likely to rise.

St George Bank’s head of economic research, Steven Milch, says that even though yesterday’s figures were positive, they do not mean the economy is not charging ahead at an unsustainable pace.

“The last three quarters of GDP growth were weaker than the economy really was, so yesterday was really a bounce back to moderate growth,” he says.

But economists from ANZ and Westpac both say yesterday’s figures increase the likelihood of an interest rate rise in the second half of 2007 or early 2008.

Westpac senior economist Andrew Hanlan says: “Despite higher interest rates, domestic demand was quite strong late last year, and that strength was broadly based. Non-farm annual GDP growth of 3% and unemployment at 30-year lows suggests the economy is running at capacity or higher.”

The strong recovery in domestic demand to 1.3% in the December quarter is good news for non-resource SMEs, many of whom have not enjoyed the fruits of Australia’s mineral-fuelled growth.

And SMEs feeling the consequences of the skills shortage will not be surprised that total employee compensation for 2006 grew by 7.4% (2.2% for the December quarter), the highest rate of increase since 2000.

Looking at the states, the big story was NSW’s unexpectedly strong 1.4% growth result for the December quarter. WA was the fastest-growing state or territory (4.3%), followed by the ACT (2.7%) and Tasmania (2.6%).

– Mike Preston

ATO’s super guidance

The tax office will provide legal guidance to the managers of Australia’s 330,000 self-managed superannuation funds, commissioner Michael D’Ascenzo said in a speech to the Self-Managed Super Fund Professionals’ Association of Australia in Sydney yesterday.

The ATO plans to publish draft guidelines on the interpretation of the Superannuation Industry (Supervision Act) 1993 as it applies to self-managed superannuation funds by the end of June 2007.

D’Ascenzo also said the ATO will beef up its enforcement and compliance section to 590 employees to enable increased scrutiny of self managed super funds.

“Where the cause of non-compliance is a lack of understanding, our strategy is to provide education and advice. On the other hand, active compliance strategies [enforcement] are required where the cause is intentional non-compliance or ‘game playing’ with the law,” D’Ascenzo says.

– Mike Preston

Enduring Brisbane edges ahead

With Sydney house prices still struggling and Perth’s bull run collapsing, investors are putting their faith and money in the trusted Brisbane property market. Figures from the Australian Bureau of Statistics show that Brisbane and Darwin led the market in price growth in the last quarter. But where Darwin is tapering off after a period of breakneck price growth, Brisbane is starting to regroup and move into a sustained recovery phase.

Unlike the Northern Territory and Western Australia, the Queensland economy is not a one-trick pony. The resources boom is playing a role but the manufacturing, agriculture and tourism industries are all contributing to a robust economy that is embarking on a spending spree.

This is the $66 billion South East Queensland Infrastructure Plan and Program. It includes big spending on road and rail connections, which often deliver windfalls to property owners. Since the plan was finalised in 2006 property prices in Brisbane have grown about 7%.

Some of the best performing areas in the Brisbane metropolitan area over the past year have been suburbs in the Beenleigh precinct – affordable suburbs halfway between Brisbane and the Gold Coast, and well-serviced by transport infrastructure and amenities.

Over the past five or six years, the best Brisbane performers have been affordable suburbs, and this has also been true of the past 12 months. That is not to say that prime property is not performing. Unlike in other capital cities, premium property in Brisbane is not heavily concentrated in the one area but dotted along the city’s main artery, the Brisbane River. River frontage is available over a considerable distance from the inner to the outer suburbs.

Apartments are another story. The Gold Coast has almost two years of unsold supply with another 5000 units in the pipeline. Brisbane, too, has been struggling with too much supply and the high cost of development, making prices for new apartments unappealing to buyers.

The Queensland Government’s $66 billion splurge includes $11 billion earmarked for new transport infrastructure over the next five years. There is also some good news from the Federal Government, with the Prime Minister’s announcement of a $2.3 billion project to fix the problems with the Ipswich Motorway, South-East Queensland’s most urgently needed project.

The $550 million Tugun Bypass, under construction on the Gold Coast, is already boosting real estate in southern Queensland and northern NSW. It will improve access to some areas and reduce existing congestion in others, and investors and developers are already active in anticipation of the benefits.

– Terry Ryder, a property journalist, analyst and author based in South-East Queensland. This article first appeared in the Eureka Report.

Small-cap moves

Clothing retailer Just Group yesterday declared a first half net profit of $39.7million, up 9% on the preceding half, and pleased shareholders with the announcement of a 65 million share buyback, which will be done off market and result in the return of up to 10% of issued shares.

And a survey by the Australian Financial Review shows small-cap recruitment companies largely outperformed the S&P/ASX Small Ordinaries in 2006. Talent 2 International (135.6%), Ambition Group (118.1%) Ross Human Directions (46.8%) and Chandler Macleod (40.1%) all reported 12-month returns on investment well above the Small Ords’ 31.3% average.

Banks using the internet to reach SMEs

The Commonwealth Bank has announced plans to win back SME banking clients by building online business communities to boost its presence, reports The Australian newspaper. CBA has a measly 13% of the business lending market, down from 23% a decade ago. Lending to small business accounts for only 15% of CBA’s total business lending.

The new plan includes placing 200 local business bankers, with higher education qualifications and small business experience, to serve 1000 branches around the country. Local websites will incorporate directories that promote local products and services.

The announcement follows BankWest’s launch of an online international trading system designed to assist its push into the SME market.

Economic roundup

Yesterday’s strong economic results appear not to have filtered through to the stockmarket this morning, the ASX/S&P 200 down 0.45% to 5798.9 at 11.30am.

The Australian dollar is holding steady at US77.63¢, up only slightly from on yesterday’s US77.61¢ close.

And New Zealand’s Reserve Bank has raised the benchmark interest rate 0.25% to 7.5%. Reserve Bank Governor Alan Bollard says the tightening is aimed at reducing the risk of an unsustainable rebound in spending in the Kiwi economy.