Australia | Jan 30 2007
By Rudi Filapek-Vandyck
The main message to be drawn from the NAB business survey for December is that business conditions remain strong in Australia, even at a time when there has been some apparent easing back from the very strong levels reported in the September quarter, National Australia Bank economists report.
The economists believe it is interesting to note that this trend appears very much driven by weaker trading and profitability readings in the retail/wholesale sectors – in other words the so-called interest rate sensitive sectors.
Businesses throughout Australia continue to worry about the outlook, NAB reports, and the economists believe this might be partially interest rate related. Business confidence in December edged down to a new low for 2006.
Not helping overall confidence, NAB reports, is that new orders seem to have weakened, reversing a few better readings recently. Employment conditions strengthened in December.
NAB economists see no reason to change their view that domestic demand will continue to weaken as the full impact of the three 2006 rate rises pass through and the drought significantly detracts from rural output and exports.
They believe core inflation has probably peaked, but it will is still likely to remain in the upper end of the RBA’s target range (2-3%) until at least the second half of 2007. NAB remains thus of the view that the most likely rate outcome is for the RBA to be on hold for a considerable time period while the central bank assesses the impact of the tightening it has already delivered.
According to the December survey, business conditions fell by 3 points to +11 which effectively takes conditions back to the levels of mid 2006. Trading & profitability fell significantly – down 7 and 5 points, respectively while wages growth was up to now 5% annually. The economists believe this is a concern. Retail prices remain well contained.