Australia | Jun 08 2010
By Chris Shaw
National Australia Bank's Monthly Business Survey for May showed a sharp fall in business confidence, this being most pronounced in the mining, wholesale and manufacturing sectors. The business confidence measure fell eight points from April to a reading of five points and now stands below its long-run average reading of seven points.
Business conditions also weakened but less significantly, its May reading of six points comparing to an April result of eight points. The business conditions index is now in line with its long-run average, the fall in May reflecting declining profitability and and a small fall in employment.
National Australia Bank chief economist Alan Oster notes the survey showed trading and employment conditions were broadly unchanged for the month, as while confidence in the mining sector fell conditions in that industry improved, along with those in the construction and transport sectors. These offset sharp falls in the recreation, finance and wholesale sectors.
Stocks, forward orders and capacity utilisation all moved slightly lower in May but Oster notes the survey implies domestic demand growth for the economy of just under 4.0% for the first half of 2010.
Credit conditions tightened a little in May, the net credit availability index falling to a minus eight reading from minus four last month. The survey showed 41% of businesses didn't need to borrow in May, down from 49% in April.
Labour costs didn't rise strongly in May, though Oster notes three-month averages suggest a combined wages and employment measure is now growing at more than 4% in annual terms. This implies some labour cost pressures, though price pressures currently remain low.
On the back of the bank's survey Oster has trimmed his Australian growth forecasts, the changes reflecting consumer and public final demand weakness as well as lower equity and commodity prices. He now expects GDP growth of 2.75% in 2010 and 3.5% in 2011, which is down from 3.5% and 4.25% previously.
Unemployment in Australia should come down to just below 5.0% late this year and to 4.5% by late in 2011 in Oster's view, while he expects the Reserve Bank of Australia (RBA) is likely to make two late hikes to interest rates this year. This should see the cash rate end 2010 at 5.0%, while 6.0% is seen as the peak in 2011.
Oster expects inflation in Australia will come in at 2.75% by the end of this year and through 2011.
From a global perspective, Oster continues to forecast global growth of a little more than 4.0% in 2010 and 2011, driven by East Asian economies and a brighter US outlook. While he has revised down expectations for European growth. Oster notes this is offset by a lift to Japanese growth forecasts.