Australia | Oct 27 2009
By Chris Shaw
Australian businesses continue to benefit from the solid performance of the Australian economy as the latest National Australia Bank Quarterly Business Survey shows both business confidence and conditions jumped in the three months to the end of September.
Business confidence rose 20 points to a reading of +16, putting it at levels not seen since early in 2002, while business conditions rose 14 points to a reading of 5. The gains were driven by better outcomes in trading and profits as well as solid improvement in employment, which improved from a reading of minus 18 last quarter to minus 4 this period. Forward orders also improved significantly, climbing 12 points to a reading of 1.
Other measures were more mixed with hours worked stabilising in the quarter but remaining 2% below the level recorded this time last year, while availability of suitable labour tightened by six points to a reading of 32. Despite the improvement it remains at historically low levels as a year ago the reading was 64 points.
Capacity utilisation rose 0.4 points to 80.5% but remains at relatively low levels, while wage pressures are not yet a threat given purchase costs and economy wide price pressures slowed sharply. Profitability rose to a reading of 8 compared to minus 5 in the June quarter. The stronger Australian dollar is also having an impact as the survey showed retail inflation is now recording slower growth.
National Australia Bank chief economist Alan Oster notes the survey showed a significant jump in both near and long-term expectations, with longer-term expectations especially returning to around long-run average levels. This is yet to flow through to investment intentions as Oster notes these remain subdued, an outlook he suggests is consistent with little real increase in capital spending over the next 12 months.
On the back of the latest data, Oster has not changed his forecasts for Australian economic growth, which remains at 0.5% for 2009 and 2.1% in 2010. This implies growth of 3.0% through the year as the worst of the consumption and business investment slowdown should be over by early in 2010.
While growth recovers unemployment is still expected to rise, Oster’s estimates suggesting it will peak at 6.75% in the third quarter of next year. The Australian dollar is also now seen as doing better than previously expected, Oster now seeing a rate of US97c late this year before a move through parity to a peak of around US103c in the middle of next year. In 2011 the currency is expected to weaken back to the mid US90c level.
The currency outlook reflects expectations of further rate increases, with Oster forecasting the Reserve Bank of Australia (RBA) will take the cash rate to 4.25% by March of next year through a series of 0.25% increases at coming meetings. At this level he expects a pause until more economic data can be assessed but further increases totalling 0.5% are seen as likely late next year as the cash rate moves to 5.5% sometime in 2011.
Globally Oster continues to forecast a decline in GDP of 1.5% this year as stronger Chinese growth will be offset by weaker numbers for the UK. In 2010 he sees global GDP growth improving to 3.0% though the composition of the numbers has changed somewhat with UK and Eastern Europe numbers weaker than previously forecast and Chinese and US numbers slightly better. Such a result would remain a lacklustre outcome for the recovery phase of the global economy in Oster’s view.
