Australia | Mar 13 2012
– Oz business conditions improve, confidence falls in February
– Near-term activity levels may drift
– NAB makes minor changes to Australian growth forecasts
By Chris Shaw
National Australia Bank's Monthly Business Survey for February delivered some mixed results, as while business conditions edged slightly higher business confidence retreated slightly and forward indicators remained at weak levels.
The survey showed business confidence declined to a reading of plus 1 for the month, down from a reading of plus 4 in January, while conditions rose one point from last month to a reading of plus 3. NAB chief economist Alan Oster suggests the fall in confidence is likely a reflection of uncertainty stemming from euro-zone and financial markets and the persistently strong Australian dollar.
Confidence in some sectors may have also been impacted by the Reserve Bank of Australia's (RBA) decision to hold rates steady in Oster's view.
The improvement in business conditions reflected a pick up in trading conditions and a slight improvement in profitability, though Oster notes this was partly offset by softer employment conditions. Labour costs were relatively steady, while price inflation picked up a little but remains at subdued levels.
Conditions improved the most in the wholesale and transport and utilities sectors, which reversed heavy falls in the previous month. Conditions also improved in the recreation and personal services and manufacturing sectors, while weakening modestly in mining and retail.
On a state-by-state basis conditions strengthened the most in Western Australia, while Victoria was the only state to record a weakening in business conditions. Both Queensland and South Australia reported marginal improvements in business conditions.
On the back of the February survey Oster makes no change to inflation estimates of 2.2% over 2011/12 and 2.5% for 2012/13. If the exchange rate remains elevated and the domestic banks continue to experience elevated funding costs there is scope for the RBA to cut rates again, Oster tentatively suggesting May could be when the net move occurs. The key will be tighter financial conditions not causing a collapse in demand.
The softening in forward demand indicators leads Oster to suggest near-term activity levels may continue to drift, though the survey suggests underlying demand growth of 3.5-3.75% and GDP growth (ex coal) of around 3.25% in early 2012.
This is down from a previous forecast for GDP growth in 2012 of 3.75%, offset by an increase in 2013 expectations to 3.75% from 3.50% previously.
From a global growth perspective Oster notes the pace of global economic growth has slowed further in recent months. This reflects the lagged impact of higher interest rates in developing economies, ongoing financial market volatility and the emerging European recession.
Positive offsets have been growth in the US and China remaining on track, which has allowed Oster to retain his forecast for global GDP growth this year of 3.25%. Some improvement should be seen in 2013, as Oster is forecasting growth next year of 3.7%.
This forecast is underpinned by an expectation US GDP growth increases from an expected 2.3% this year to 3.1% in 2013, while UK growth is forecast to increase to 1.8% next year from 0.7% this year. Japanese growth is expected to slow from 2.7% in 2012 to 2.2% in 2013, while Oster expects the European recession will be short-lived and growth will increase from an expected minus 0.6% this year to 1.1% in 2013.
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