Australia | Sep 11 2007
By Rudi Filapek-Vandyck
Business conditions in Australia remain at record levels despite global financial market turbulence, a monthly survey by National Australia Bank has found.
According to the survey, business confidence has edged lower in August, but it remains at robust levels. National Australia Bank economists believe the odds continue rising in favour of a pre-Christmas rate rise from the Reserve Bank of Australia.
Among the key takeaways from NAB’s August Survey are that overall business conditions remained unchanged at +19 (record high); overall trading was down 1 to +26; while profitability was up 2 to +20. The latter is a new record high, the economists point out.
Employment in August was unchanged at +10. New orders were up 4 to +9 and the trend remains up with orders at the highest level since 2004, National highlights. Overall confidence fell 2 to +10. National economists add that while the trend in business confidence is negative the overall level remains “reasonable”.
The August survey also found that retail, wholesale and construction all reported better conditions but weaker confidence in the face of equity market volatility and recent rate rises. The mining industry was noticeably stronger (and we doubt that surprised anyone).
Overall capacity utilisation was up 0.2 to 83.5% in August. National explains the latter figure matches the record high from early 2007.
Viewed in its entirety, the economists believe the August survey is consistent with domestic demand of around 4.75% in the September quarter. This would be consistent with business expectations in the June Quarter but lower than the Accounts where public demand boomed.
Overall wages growth remains stable, edging down to 5.1% in the year to July, while purchase cost inflation continues to edge down (to 3.25%) with retail prices unchanged at 2.1%, the economists report.
The results of the August survey have not caused any major revisions in the economic and/or financial outlook for National Australia Bank’s team of economists. However, the team highlights the fact there remains a real and significant risk of a moderate recession in the US. Taking all this into account, the team has increased its GDP growth estimate for Australia to 4.25% in 2007 (forecast for non farm stands at 4.75%) and to 3.8% in 2008.
Core inflation is expected to surge to around 3% by early 2008 before easing to 2.6% by the end of calendar 2008.
The economists believe all this raises the risk for an interest rate hike in Australia this side of Christmas 2007. Additional fiscal stimulus by a desperate Howard government fighting for survival would tip the RBA’s hand.