AUSTRALIANS SPENDING IN SPITE OF HIGHER INTEREST RATES.

Australian interest rates began to rise during the second half of 2003, but consumer goods sales are likely to remain strong through 2004. However, there is increasing evidence that the heated demand for residential real estate that drove up property prices over the past two years is beginning to cool.

Total car sales in Australia rose 10.4 percent during 2003, and dealers are expecting strong demand in 2004, in spite of higher interest rates. Strongest sales growth is found in the luxury SUV category, which experienced sales growth of 39 percent last year and should experience double-digit gains in 2004. The nearly 35 percent increase in the value of the Australian dollar relative to the U.S. dollar over the past two years gives a cost competitive edge to imported vehicles.

Retail sales should show year-on-year gains in excess of 5 percent through much of the first half of this year. Growth in sales of furnishings and household decoration items should peak at nearly 10 percent during the second quarter of 2004, before dropping below the 5 percent mark by years end.

The upward spiral in building permits came to an end late in 2003 and a climate of little or no growth is likely to prevail through the first three quarters of 2004. The number of permits issued for apartments and townhouses has dropped below levels recorded 12 months earlier and should remain there through the second quarter. That will cause the double-digit growth in sales of construction materials experienced in 2002 and 2003 to fall well into the single digit range this year.