Australia | Apr 29 2008
By Chris Shaw
As FNArena reported yesterday the National Australia Bank quarterly
survey of business confidence showed a decline to levels last seen in
2001, confirming both large and small businesses view the outlook as
getting significantly tougher in coming months.
More details of the survey have now been released and they show along
with the decline in confidence a significant fall in business
conditions, down six points to a reading of +13, an outcome the bank’s
group chief economist Alan Oster suggests is consistent with the
slowing in demand growth to 3.5% experienced in the first quarter of
the year.
As demand growth fell so too did trading and profitability, the former
falling 12 points to a reading of +17 and the latter down 11 points to
a +8 reading, though employment wasn’t so affected and fell only three
points and remains relatively strong at a +11 reading.
A further issue Oster notes is companies continue to have difficulties
finding suitable labour, as more than 70% of companies confirming they
were having trouble in this regard, an increase of more than 4%. This
ties in with still high levels of capacity utilisation, which even
after a 0.3% fall in the period remains high at
almost 84%.
Oster also notes retail price pressures continue to accelerate and this
underscores an expectation inflation will stay at around 4% through
2008, leading him to suggest the Reserve Bank of Australia’s bias
remains to the upside with respect to rates in coming months.
While further hikes in rates are not expected Oster does see a chance
of one further increase if there is no slowing in demand in coming
months, while longer-term the bank sees rate cuts beginning in 2009 and
expects cash rates to be back down at 6% by late next year or
early in 2010.
Overall the data leads Oster to suggest the Australian economy may be
slowing faster than had been expected, with clear signs the increases
in interest rates are impacting on rate sensitive sectors of the
econony and on the consumer. While there are no changes to his
forecasts of GDP growth of 2.75% both this year and in 2009 Oster
points out the risk now appears to be to the downside.
Stronger commodity prices will continue to boost Australia’s terms of
trade and this plus the combination of tax cuts and a stronger
agricultural sector should prevent any hard landing for the Australian
economy, though domestic demand growth should slow from more than 5%
last year to closer to 3.5% this year and a little less than that in
2009 on the bank’s numbers.
Globally the bank’s forecasts are unchanged, with forecast GDP growth
of 3.5% this year and 3.75% in 2009, which Oster notes implies a period
of sub-trend growth rather than a global recession. The US
won’t help given the bank is forecasting just 1.25% GDP growth this
year and no strong growth until the second half of 2009, which means
further rates cuts of as much as 50 basis points are likely by mid-year.
While the UK and Europe won’t be immune to any slowdown the bank sees
modest improvement in growth in both regions in 2009, while slightly
lower but still strong growth from China and India support the overall
global growth outlook.