Australia | Oct 14 2008
By Chris Shaw
Given its survey was taken during uncertainty over the approval of the US Government’s bailout plan and before the Reserve Bank of Australia (RBA) lowered interest rates last week the National Australia Bank Monthly Business Confidence and Conditions Survey returned surprisingly buoyant results.
The survey showed business conditions improved by two points to a -1 reading, though the improvement needs to be kept in context given the index remains 21 points below its peak last October. Business Confidence levels didn’t fare as well and fell one point to -8, though the bank notes in trend terms both series were effectively unchanged.
Other measures were mixed as the bank notes trading conditions rose four points to a +1 reading and profits rose two points to a reading of -4, but employment continued its recent trend of falls and was down a further two points to a reading of -2, which the bank suggests is indicative of some moderate job losses. Capacity utilisation fell 0.7% to 81%, its lowest level since October 2002.
A feature of the result according to the bank’s chief economist Alan Oster is it wasn’t a broadly based outcome given the gain in business conditions was driven by a stronger mining sector result, with most other sectors of the economy recording flat or slightly lower readings.
In contrast mining confidence fell sharply in the month on the back of lower commodity prices, while the manufacturing and transport sectors also recorded slightly lower numbers. Somewhat surprisingly the retail and wholesale sectors recorded modest gains in confidence readings.
Factoring in the numbers sees Oster forecast for Australian growth in 2009 cut to 1.25%, which compares to his forecast for 2008 of 2.5% and his previous forecast for next year of 2.25%. The change reflects both lower commodity and equity market prices and lower global growth forecasts. Given the growth outlook the bank expects the RBA to cut rates further, forecasting a cash rate of 5.0% early next year and to 4.5% by next July.
In terms of the global growth outlook the bank has lowered its GDP estimate for next year to 2.25%, which implies zero growth in the US economy next year and weaker growth in the UK than previously expected. The risk to its growth forecast remains to the downside.