Australia | Mar 09 2010
By Chris Shaw
National Australia Bank's Monthly Business Survey and Economic Outlook for February showed a rise in business confidence for the month, the four point improvement enough to return the index to the highs seen late last year.
The business confidence reading was plus 19, a level that before last November had not been achieved since May of 2002. The February result means the index has given a positive reading in six of the last seven months, with gains in the mining, retailing, wholesaling and transport sectors the main drivers of the improvement for the month.
The bank's chief economist Alan Oster notes business conditions also improved and rose five points to a plus 8 reading, largely in response to improvements in trading conditions and profitability. While strong, Oster points out conditions remain slightly below the highs of last December.
A majority of sectors reported improved conditions, the largest improvements coming in recreation and personal services, while the wholesale and construction sectors posted lower numbers. While the manufacturing and retailing sectors showed improved conditions in February, they continue to trend lower on a medium-term basis.
One positive according to Oster, was the six point gain in forward orders, as this reversed the fall registered in January and means this measure has been positive in five of the past six months. The strength in forward orders contributed to the four point decline in stocks, the survey results implying demand growth of around 5% annualised over the last six months.
Capacity utilisation fell slightly for the month and is now at 80.7%, Oster noting there is still little sign of any sustained recovery in business capital expenditure despite the gains in confidence.
The survey results show wage and price pressures remain under control, as compared to January numbers labour cost pressures eased on a quarterly basis to 0.7% from 0.9% and quarterly purchase cost inflation fell to 0.3% from 0.5%.
On the back of the survey results Oster makes no changes to his growth forecasts for Australia, which implies GDP of 3.0% in 2010 and 3.75% in 2011. Unemployment is forecast to fall to 4.75% by the end of this year and to 4.25% by the end of next year.
With no changes to growth forecasts, Oster still expects the Reserve Bank of Australia (RBA) to move further on interest rates, his tentative forecasts calling for hikes in May, August and November of this year, though the timing of any moves remains data dependent in his view.
He expects the cash rate will peak at 5.5% in the middle of 2011, while inflation is expected to slow to 2.3% by the end of 2010. Oster notes this forecast is marginally below the estimate of the RBA.
Global growth forecasts are also unchanged, Oster expecting GDP growth of 3.5% this year and 4.0% in 2011 as strong growth momentum in China and Asia and improving results from the US and Japan are offsetting continued disappointments in Europe.