In a report titled Australia: Still Fundamentally Bearish, AllianceBernstein senior economist Guy Bruten said positive employment news may not hold up to scrutiny and the next phase of the Australian economy could bring weaker LNG prices and a housing correction.
Mr Bruten said despite “better-than-expected labour market figures”, employment remained on shaky ground, with mining and manufacturing sectors deteriorating while more diversified sectors improved slightly.
Meanwhile, he warned prices for LNG – currently Australia’s third largest resource export – are tightly linked to oil prices, which are currently in decline.
“With oil at US$100/barrel, LNG is around US$16/mmBtu,” he said.
“But at today’s oil price of around US$50, the implied LNG price is somewhere around the US$7/mmBtu mark. A substantial correction is likely.”
He said while existing LNG projects were unlikely to be cancelled, their profitability would be curtailed and new projects were unlikely to go ahead.
“So there are implications here for tax revenue and capital spending (a steeper drop than anticipated as no new projects are commenced) as well as for expenditure on exploration and support services,” he said.
“In turn, that has ramifications for employment – a further shake-out lies ahead.”
In addition, Mr Bruten warned the housing market was likely to end its current upswing and enter into a correction phase.
“Perth has already been underperforming, relative to Sydney at least, after outperforming dramatically through the commodity-boom phase. More of that is likely to come,” he said.
In Sydney, he warned that high levels of investor activity and an emerging oversupply in certain pockets may lead to prices easing.
“There’s a clear risk that falling house prices may be the next phase in the post-commodity-boom adjustment story,” he said.
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