Australia | Dec 14 2010
By Chris Shaw
National Australia Bank's Monthly Business Survey for November showed mixed results, as despite a slight gain for the month business conditions remain soft and business confidence weakened during the period.
Business conditions rose by two points to a plus four reading and business confidence fell by a similar amount to a reading of plus six, meaning both measures are below their long-term averages. Conditions deteriorated most sharply in mining and also fell in the retail, wholesale, finance/business/property and transport and utilities sectors. Conditions did improve in the construction, recreation and manufacturing sectors.
Despite the fall in November, conditions remain strongest in the mining sector as well as in transport, while they are weakest in the retail, wholesale and manufacturing sectors. Business confidence is also strongest in the mining sector and weak in the wholesale and manufacturing parts of the economy.
The survey showed trading was unchanged at a reading of plus four, while profitability returned to positive territory with a six point gain to a plus two reading. Capital expenditure increased for the month by three points to a reading of plus 10.
NAB chief economist Alan Oster notes other data showed a slight weakening in employment and forward orders, while stocks and export sales both fell more heavily. This saw capacity utilisation drift lower, to 80.9% in November from 81.1% in October.
Both labour and purchase costs drifted down in November, but the changes here weren't enough to stop final product prices rising to a reading of 0.4 for the month from 0.0 in October.
Oster suggests the survey is consistent with domestic demand of around 3% in the December quarter, which implies annualised growth in non-farm GDP of around 2.5%. To reflect this slowing in demand Oster has lowered his growth forecasts for the Australian economy to 2.7% for 2010, down from 3.2% previously.
Through 2011 Oster expects Australian GDP growth of around 3.6% against a previous forecast of 3.7%. The change reflects no signs yet of a sustained pick-up in the economy overall. Growth is forecast to improve slightly to 3.8% in 2012.
The economic weakness implied by the survey is probably a surprise to the Reserve Bank of Australia (RBA) in Oster's view and to reflect this he has adjusted his timetable for future hikes in official interest rates.
Having previously expected a February rate hike Oster now doesn't see a move to a cash rate of 5.0% coming until May of next year, with rates now expected to peak at 5.25% by next August. A strong exchange rate outlook, with the Australian dollar tipped to peak at around 1.05 against the US dollar, should help keep inflation under control in Oster's view.
In terms of global growth expectations Oster has revised forecasts for Japan, the Euro zone, India and non-Japan Asia but the changes don't impact on overall estimates. Oster expects global growth of 4.7% this year, falling to 4.3% in 2011 and 4.1% in 2012.
Regionally, Oster's forecasts suggest growth in China and non-Japan Asia will ease but stay at relatively high levels through 2012, while growth in the US and UK should improve between now and 2012.