Australia | Apr 14 2009
By Chris Shaw
While the readings remain at depressed levels there are signs of light on Australia’s economic horizon as the National Australia Bank Monthly Business Survey and Economic Outlook numbers for March showed slight improvement in both business conditions and confidence levels.
Business conditions recorded a three point gain but are still at an overall reading of minus 17, which is around lows last seen in June of 1992. The bad news is every sector of the measure fell in trend terms and in aggregate trend terms they recorded a four point fall to a reading of minus 16.
The improvement in business confidence was more marked as the reading rose nine points to minus 13, which as the bank’s chief economist Alan Oster notes, is the second successive month of near double-digit improvement. While gains were broadly based the strongest results came from mining, manufacturing, retail and finance, which as Oster notes have been among the worst performers of late.
In state-by-state terms Oster suggests the March survey appears to reflect a bottoming in Queensland, Victoria and Western Australia, to the extent there is now little difference in confidence levels across the states. With respect to business conditions the large lead previously enjoyed by Western Australia continues to evaporate, while Victoria and Queensland are still delivering relatively weak numbers.
The survey showed both trading and profitability rose by five points to respective readings of minus 10 and minus 12, while employment went the other way and recorded a two point fall to a reading of minus 29, its lowest since September of 1991.
Similarly a nine point improvement to a minus 18 reading for forward orders still leaves this measure at its weakest since June of 1991, while Oster notes stocks were also run down a little further as a two point decline leaves the reading at minus 12.
Given economic activity levels remain weak, it is little surprise capacity utilisation also weakened further, declining by 0.5 points to 78.9%, its lowest level since July of 2001. On the plus side Oster notes current investment spending rose seven points to a minus 13 reading, though this was largely offset by a four point fall in exports to minus 30.
The survey also showed a sharp fall in labour costs, Oster estimating implied annual wage growth is now around 3.1% against 3.7% last month and well down from a level of 5.4% in the middle of last year. Credit conditions appear to be improving slightly however, this month the survey showing 18% of respondents reporting tougher credit conditions against 26% last month.
Post the March survey Oster makes no change to his forecasts for either Australian or global economic growth. Domestically he expects GDP to fall 1.0% this year before growing by 0.9% in 2010. He points out these forecasts factor in the current weak starting point as well as expectations of weaker exports and business investment given the poor global economic outlook.
In such an environment Oster expects unemployment will worsen, with a rate of 6.75% expected at the end of this year and 7.75% by late in 2010. Given recent action Oster sees the Reserve Bank of Australia (RBA) as in something of a wait-and-see mode in coming months, with any further cuts to rates being data dependent and likely to be only of the 0.25% variety. Overall he expects the cash rate to hit 2.0% by late this year.
For the global economy Oster is forecasting GDP of minus 1.0% this year and a bottoming in world growth either late this year or early next year before a recovery to a below trend rate of 2.25% in 2010. This year will highlight particularly weak performance in trade exposed economies such as Japan and the other Asian tigers, with global trade levels tipped to decline by around 10% this year.
Oster expects growth in G3 economies to fall by around 3% in 2009 with risk to the downside for both Japan and Europe given a large build-up in inventories and, for the Europeans in particular, only moderate fiscal stimulus packages.