Australia | Apr 30 2009
By Chris Shaw
Business conditions in Australia are now at their lowest level since 1992 as shown by the National Australia Bank Quarterly Survey for the three months to the end of March, the bank’s chief economist Alan Oster noting March represented the fifth consecutive months of falls in this measure. The outcome was minus 20 points, down from minus 16 points in the December quarter of last year.
Confidence levels are also weak as while March showed a modest improvement to a reading of minus 24 from minus 31 previously, the confidence readings remain at levels equal to those reported at the bottom of the 1990’s recession. In Oster’s view the most disconcerting element of this is business expectations have declined to their lowest level since the survey began in 1988.
Other measures are similarly weak, with forward orders now at levels last seen in June of 1991 and labour market numbers looking likely to fall sharply in coming months given there has already been a large fall in hours worked. This has also impacted on capacity utilisation, this measure returning to sub-80% levels for the first time since 2000.
While Oster saw little good news in the latest survey, one brighter spot was a minor increase in capital expenditure plans, but despite this improvement the measure remains at record lows. Exports are similarly at record lows, while forward orders for exports are also very weak.
Overall Oster sees the findings as pointing to another fall in Australia’s GDP in the March quarter but to date he has not adjusted his growth forecast for 2009 of a fall of 1.0%, before anticipating a modest recovery to growth of 1.0% in 2010.
His forecast for next year assumes further fiscal stimulus measures in the upcoming Federal Budget, which he estimates implies a deficit of something around $50 billion. Of note, Oster continues to see a build up in downside risks for his growth forecasts.
Weaker growth spells trouble for the labour market and Oster expects unemployment will peak at 7.75%, though the risks to the upside here are also building. In an attempt to counter this he expects the Reserve Bank of Australia (RBA) will eventually bring the cash rate down to 2.0%, though he takes the view future cuts will be more measured.
In terms of the global economy Oster has lowered his growth forecast slightly to a fall of 1.5% in 2009 compared to a previous estimate of a 1.0% decline, reflecting weaker outcomes in Japan, East Asia, Russia and Eastern Europe and the UK. As examples Oster now expects Japanese GDP to contract by 5.5% this year compared to a 3.4% fall previously, while growth in the UK economy is now forecast to fall by 3.5% compared to 2.6% previously.
In Oster’s view there are few “green shoots” or signs of good news emerging in the real data being released around the world, meaning any recovery will be a subdued one. His numbers call for global GDP growth to increase to just 2.25% in 2010.