Australia | Mar 13 2007
By Chris Shaw
The latest National Australia Bank Monthly Business Survey has shown a further improvement in business conditions, with the bank’s index recording a reading of +18 for February and the trend suggesting further gains are possible.
The bank points out the profit gains recorded in the January survey have held and been matched by stronger trading and employment readings, which rose six and four points respectively to readings of +24 and +9 for February.
The survey also shows business confidence is being restored after falling last year as interest rates moved higher, the reading of +12 being six points higher than the previous month and the trend indicating additional gains are likely in coming months.
One soft spot in the data was new orders, which recorded a fall of five points and appear to be turning down, while further increases in capacity utilisation don’t change the bank’s view this figure has peaked.
This hasn’t impacted on capital spending as that index has risen a few points since the end of 2006, while companies exposed to the export sector continue to enjoy strong conditions as evidenced by the nine point jump in exports to a +9 reading.
In terms of industries there has been little change to the recent strength in the mining, business and financial services sectors, while construction activity remains at relatively high levels.
Retail has managed to hold on to recent gains, which the bank notes is flowing through into improved performance in the wholesaling sector. Confidence in the manufacturing sector showed a solid improvement in February but the survey shows the transport sector eased a little during the month.
On a state-by-state basis there is also little change, with conditions remaining strongest in Western Australia and weakest in South Australia, while confidence levels in Queensland, Victoria and to a lesser extent New South Wales are moving higher.
The end result of the survey is little change to the bank’s growth forecasts, though it has nudged up its GDP growth forecast for Australia for the year to 2.6% from 2.25% previously. There is no change to its 2008 forecast of 3.5% growth.
It continues to suggest there will be little further improvement in the unemployment numbers, with its expectation being for unemployment to return to around 5% by the end of the year based on a slowing in domestic demand from 3.75% currently to around 2.5% by the end of 2007.
Core inflation has peaked in the bank’s view, with the inflation figure to be in the middle of the Reserve Bank of Australia’s (RBA) target band of 2-3% by the end of the year, which it notes is a slightly more optimistic forecast than that of the RBA itself. It expects the RBA will adopt a wait and see approach to interest rates in coming months.
The bank continues to see global growth slowing from 5% to around 4.0-4.25% by the end of this year and into 2008, with a slower growth rate in the US being offset by slight gains in Australia and Japan. The slower growth outlook in the US has the bank suggesting the Federal Reserve is close to lowering interest rates, with three cuts factored in by the bond market from late this year into early 2008.