Australia | Apr 10 2007
By Chris Shaw
National Australia Bank has released its latest Monthly Business Survey and while the index showed a one point decline in March to +17 the bank notes conditions remain robust across all the index components.
The bank’s survey showed no change in trading conditions, which remain at +24, while new orders rose three points over the month to a +10 reading, with the trend suggesting even higher levels will be achieved in coming months.
The trend is similarly positive in terms of confidence levels, this despite a fall for the month of two points to +10, while capacity utilisation remains high at around 83.2%, though this too was down for the month by 0.7%.
While profitability fell slightly, down two points to +16, the bank notes this was offset by an similar increase in employment to +11, the survey also showing improvements in the retail, wholesale and construction sectors for the month against a modest decline in the mining sector.
A highlight was a 10-point increase in forward orders, the bank suggesting this is indicative of faster underlying growth in the non-farm sector of the economy in coming months. Also supportive for the economy generally is the lack of any sign of excess stock build-up, as strong activity across most sectors has reduced stock levels accordingly.
Despite a small decline in March the mining sector remains the strongest, while the business and financial services sectors continue to move higher from what were already strong levels of activity.
The construction sector has also strengthened further and the personal and recreation sectors are also showing signs of improvement according to the March figures. While manufacturing is strengthening it continues to be one of the economy’s weakest sectors, while the transport sector has eased slightly.
The bank points out Queensland, Victoria and to a lesser extent New South Wales have recorded the strongest increases in business confidence, while conditions and confidence in South Australia have continued to decline.
Wages grew 1.3% for the month, a decline from previous months but still high enough to cause concern for inflation in the bank’s view given the high level of capacity utilisation. Purchase costs also edged higher, the bank suggesting the Reserve Bank of Australia (RBA) would be looking for signs of an easing of upstream cost pressures in coming months.
Following the survey results the bank expects growth in Australia to be stronger than it had previously expected, the result being it now expects GDP for 2007 of 2.9%, strengthening to around 3.75% in 2008.
Domestic demand is expected to be only moderately lower this year but to strengthen noticeably in 2008, while the bank expects unemployment to remain at around 4.75% through to the end of next year. Inflation is an increasing concern, so the bank expects the RBA will closely watch future data. While not expecting any further increase in rates it sees a 30% chance of a rate hike in May.
Feeding this into its currency outlook, the bank now expects the Australian dollar to peak at around US82c by September, before gradually weakening to around US77c by the end of 2008.
The bank points out these forecasts are dependent on the US economy avoiding a hard landing, at odds with its view the risks of a recession are increasing. It continues to forecast three cuts in US interest rates starting later this year, while it expects global GDP to decline to 4-4.5% this year and 4.25% next year from around 5.0% last year.