Australia | Dec 08 2009
By Chris Shaw
In what group chief economist Alan Oster called a remarkable result given the levels already achieved, the National Australia Bank Monthly Business Survey for November has revealed Australian business confidence edged even higher, though business conditions were unable to match the result and fell slightly for the month.
Business confidence rose three points to a plus 19 reading, meaning confidence level are at their highest since May of 2002. Confidence rose in the mining, retail and transport sectors, but fell in the construction sector from what had been very high levels. Confidence also declined in the wholesaling sector.
Business conditions declined two points to a plus 10 reading, Oster noting this result followed the nine point jump in October as different sectors recorded quite different outcomes. The mining, manufacturing, transport, finance and personal and recreational services sectors recorded sharp falls, while construction was largely unchanged and the retail and wholesale sectors posted significant improvements.
The survey showed trading conditions were unchanged at a plus 15 reading, while profits declined by two points over the month to finish at a reading of plus 11. Employment fell by five points but at plus two it remains positive, only the second positive reading since the middle of 2008.
Overall Oster notes the Survey showed a slightly softer tone, which was reflected in a fall in capacity utilisation of 0.7% to 81.4%, though this is still above long-term average levels. Stocks were flat for the month, though exports were weak as that index recorded a result of minus seven points and capital expenditure fell slightly for the month.
On the plus side Oster notes forward orders reversed their decline of October and posted a six point gain to a reading of plus nine, the highest level since August of 2007. This level is consistent with growth in demand of around 4.75% for the second half of 2009. Purchase costs rose 0.1% for the month, but have slowed in annual terms to a rate of 1.8%, the lowest since April of 2004.
Other data were less positive, Oster pointing out labour costs increased by 0.9% on a quarterly basis, up from 0.8% last month, marking the fifth successive month of faster wage increases. Retail prices gained, the 0.5% increase well up from the flat outcome the previous month. Credit availability also tightened, the difficulty in finding finance reading increasing to plus 11 points from plus eight points in October. Those businesses not wanting finance fell to 34% from 45% the month before.
Post the survey and to reflect other recent economic data as well, Oster has lifted his growth forecasts for the Australian economy, now expecting GDP to grow by 1.25% this year and by 2.75% in 2010, up from his previous forecasts of 1.0% and 2.5% respectively.
Unemployment is now expected to peak at 6.2%, down from 6.5% previously, while Oster has not changed his expectation for core inflation to finish 2010 at a level of 2.0%. His new numbers don’t impact on his expectations for monetary policy moves by the Reserve Bank of Australia (RBA), with increases in the cash rate of 0.25% still expected in both February and March. Oster’s interest rate profile is unchanged, meaning a cash rate of 4.75% by the end of 2010 and a peak of 5.5% by the middle of 2011.
There are no changes to Oster’s global growth forecasts, which stand at a decline of 1.5% this year and growth of 3.0% in 2010. The recovery continues to be led by China and non-Japan Asia, while Europe and the UK continue to lag in his view. Oster’s 2010 forecast for growth remains below trend but reflects ongoing uncertainties such as the recent developments in Dubai that point to a gradual recovery in world growth.
As well, Oster makes the point the market at present may be underplaying the extent to which policy measures such as fiscal stimulus measures in China and the US have boosted growth, leaving open the possibility the pace of recovery in global activity in the latter half of 2009 could disappoint some expectations. By 2011 growth is expected to return to around trend levels, Oster forecasting global GDP that year of 3.75%.