Australia | Apr 27 2010
By Chris Shaw
National Australia Bank's Quarterly Business Survey showed a slight slip in business conditions in the three months to the end of March, though the results show conditions remain at solid levels.
Sales eased marginally, which offset stronger employment and unchanged profitability. The bank's chief economist Alan Oster viewed the results as consistent with a continuation of the recent trend of strong domestic demand and ongoing employment growth.
The mining sector saw the greatest improvement in business conditions, Oster seeing this as partly due to increased prices in new export contracts. On the flip side, he notes conditions worsened in the retail, wholesale and construction sectors.
Strongest results were recorded in the mining, transport and finance sectors and weakest in the retail, construction and agribusiness sectors.
The Survey also showed a slight easing in business confidence, though Oster notes this measure remains firmly in positive territory for the third quarter in succession. Confidence remains positive across all industries and is strongest in the mining sector, followed by the wholesaling, manufacturing and finance sectors.
In terms of new data in the survey, Oster notes business capital spending plans over the next year rose slightly, with this measure now consolidating at moderately positive levels. The proportion of firms reporting output being restrained by a lack of demand rose marginally, but this measure remains well below its peak in the March quarter of last year.
Average hours worked has changed little over the past 12 months according to the survey, while capacity utilisation improved 0.1 points in the March quarter to stand at 81.4%. Oster notes retail price inflation has continued to drift lower, in part because of the strength of the Australian dollar.
On the back of the quarterly survey there are no changes to Oster's Australian growth forecasts, which stand at GDP growth of 3.5% in 2010 and 4.25% in 2011. These growth estimates imply unemployment falls to around 4.5% by the end of this year and 4.0% by the end of 2011.
Oster expects the Australian dollar will continue to strengthen, hitting parity by the middle of this year and staying at that level until the end of September. The Aussie dollar should then decline to around US97c by the end of 2010.
Given an expectation for core inflation of 2.5% by the end of this year and 2.75% by the end of 2011, Oster expects further increases in interest rates by the Reserve Bank of Australia (RBA). His forecasts call for a cash rate of 5.25% by late this year and 6.0% by late 2011.
The indicative timetable for future rate hikes at present is moves of 0.25% in May, June, August and November in Oster's view.
For the global economy, Oster expects growth of just over 4.0% in 2010 and 2011, the result being underpinned by solid growth in emerging economies such as India and China. This is a slight increase from his previous forecasts, reflecting an expectation Chinese growth hits 10.5% this year and has a positive flow-on impact to non-Japan Asia.
US economic growth is forecast to come in at 3.3% this year and around 3.0% in both of the next two years, while in contrast Oster is forecasting only around 1.0% growth for the Western European economy in 2010.