Australia | May 11 2009
By Chris Shaw
At the same time as higher equity prices in recent weeks suggest improving investor confidence, National Australia Bank’s latest Monthly Business Survey and Economic Outlook shows business conditions are also improving, the measure rising in April to levels equal to those recorded late in 2008 and early this year.
The bank’s chief economist Alan Oster notes better results in the transport and retail sectors on the back of the government’s latest cash initiatives drove the improvement in conditions, the measure rising seven points to an overall reading of minus 10. The result means the trend decline in conditions has stabilised for now at least.
All components of business conditions rose in the month with trading up seven points to a reading of minus 3 and profits increasing by two points to a minus 10 reading. Employment remains very weak at a minus 18 reading but improved by 11 points in April.
While conditions have improved, confidence levels remain largely unchanged, Oster noting the measure is still at minus 14 as improvements in the transport and mining sectors were offset by lower readings in the wholesale sector. The big improvement is in the trend confidence reading, as this improved by five points to minus 16.
Forward orders have also continued to recover as after gaining solidly in March they rose again by seven points and now stand at a reading of minus 7, the best level since last September. Capacity utilisation gained but to a lesser degree, moving up by 0.8 to a reading of 79.7% while Oster notes capital spending also rose slightly, improving by three points to a minus 10 reading.
The falls in commodity prices of late last year and early this year are finally feeding their way into the broader economy as Oster points out purchase costs declined by 0.1% in April, their first fall for some time. Little changed in the month in terms of the availability of credit, April showing 17% of respondents recording tougher credit availability against 18% in March.
With the Federal Budget out tomorrow Oster has made no changes to his forecasts for the outlook for the Australian economy on the back of the survey results, meaning GDP growth of minus 1% is expected this year and a gain of 0.9% in 2010. The forecast for this year reflects both the weak start to 2009 and a combination of weaker exports and business investment given the poor global economic outlook.
To counter the low growth, Oster expects the Government will provide a further $15 billion in fiscal stimulus, which should see the deficit increase to around $65 billion in 2009/10. Unemployment is also anticipated to rise further, Oster’s forecasts calling for a rate of 6.75% by the end of this year and 8% by late in 2010.
Given the extent of cuts in interest rates to date, Oster sees the Reserve Bank of Australia (RBA) as largely on hold at present, with any further cuts to be data dependent and delivered in small moves of 0.25%. He currently forecasts a bottom for rates of 2.5% by late this year before an increase to around 3.0% by the end of 2010.
Global growth forecasts have also not changed from March, meaning Oster is forecasting global GDP of minus 1.5% this year. Driving this estimate are expectations of significant weakness in the US, Japan and EU, where GDP is forecast to decline this year by 2.8%, 5.5% and 3.8% respectively.
While economic growth in 2010 should be better, Oster continues to see growth coming in at sub-trend levels, forecasting global GDP growth of just 2.25% next year.