Australia | May 10 2010
By Chris Shaw
Growth momentum in the Australian economy remains strong but it is slowing, as evidenced by National Australia Bank's Monthly Business Survey for April.
The survey showed both business conditions and confidence levels were weaker for the month, conditions falling to a reading of plus eight, down from a plus 13 reading in March. Business Confidence declined three points to a reading of plus 13.
National Australia Bank chief economist Alan Oster suggests the weaker numbers for April were driven by softer results in the retail, construction and transport sectors. This reflects the impact of higher interest rates on interest sensitive sectors.
Trading also fell significantly in April to a reading of plus seven from plus 15 in March, while Oster notes profitability and employment also eased. Forward orders declined as well but remain at reasonable levels.
April also saw a slight decline in capacity utilisation and with signs of a short-term pause in growth momentum. Oster suggests this measure may slow further in coming months.
The slowdown in capacity utilisation translated into a build-up in stocks, while the April numbers showed capital expenditure fell by three points to a plus three reading. On the plus side Oster notes the trend data continues to indicate moderate improvement in capital spending and longer-term investment intentions.
Price pressures remain relatively subdued according to the survey data, Oster noting economy-wide prices slowed from a three-monthly growth rate of 0.9% to 0.7%. Labour costs continue to rise however, the April quarterly rate increase of 1.3% being the highest since the middle of 2008.
On the back of the April data Oster makes no changes to his Australian growth forecasts, which are for GDP growth of 3.5% this year and 4.25% in 2011. Unemployment is forecast to fall to 4.5% by late this year, while inflation is expected to end 2010 at 2.5% and 2011 at 2.75%.
Rate hikes by the Reserve Bank of Australia appears on hold at present but Oster expects the cash rate will be at 5.25% by the end of this year. This implies additional 0.25% rate hikes in August, September and December. The cash rate is expected to peak at 6.0% sometime in 2011.
Oster's global growth estimates are also unchanged at a little over 4.0% both this year and next. China, India and Asia in general will drive the recovery but the US outlook is also improving. Europe remains the laggard with growth of less than 1.0% forecast given ongoing sovereign debt concerns.