Australia | Mar 10 2009
By Chris Shaw
With economic data continuing to worsen it is little surprise Australian business conditions are also continuing to fall, the National Australia Bank Monthly Business Survey and Economic Outlook for February showing a further nine point decline to a reading of minus 20, a level last seen in 1992.
The better news was a modest increase in business confidence, the measure increasing by 10 points to a reading of minus 22. The improvement reflects better sentiment in the retail and wholesale sectors, though as the bank’s chief economist Alan Oster notes levels remain at recessionary levels.
Elsewhere the news was not so encouraging however as the survey showed an 11-point fall in trading conditions to a reading of minus 15 while profits declined by five points to a reading of minus 17, Oster pointing out in both cases the numbers have returned to their lows from prior to the government’s first fiscal stimulus package.
Employment also continues to weaken sharply and for the month the measure fell 10 points to a minus 27 reading, which was the largest monthly decline in the history of the survey and returned the measure to its lowest level since December of 1991
There appears little chance for any improvement in the employment outlook in coming months as Oster notes forward orders were similarly weak as de-stocking continues and capacity utilisation moved below the 80% level for the first time since 2001. Exports increased slightly for the month but remain at very low levels and Oster notes the trend remains down for capital expenditure after a relatively flat result for the month.
The bank’s survey also measures credit availability and it notes there was a slight tightening for the month as 26% of respondents indicated it was becoming more difficult to access credit, up from 17% of respondents last month.
As Oster notes, until recently most of the downturn in the Australian economy has been the result of weakness in the domestic economy, but the trend in exports suggests global forces are now beginning to impact on growth, which implies conditions can still deteriorate further. To reflect this, post the survey Oster has further lowered his forecasts for Australian GDP growth and having previously expected GDP to contract by 0.25% in 2009 he now sees a decline of 1.0% as likely.
While growth should return to the positive side of the ledger in 2010 it should be modest, Oster forecasting an expansion of just less than 1.0% next year. Non-farm GDP growth remains the main variable, as he expects it will move from a decline of 1.25% this year to an increase of 0.75% next year.
The GDP numbers imply further increases in unemployment and Oster now expects this measure will reach 6.5% by the end of this year before peaking at 7.5% in 2010. With such an outlook he argues the Reserve Bank of Australia (RBA) has not finished easing interest rates and the cash rate should get as low as 2.0% before the cycle has run its course. In timing terms Oster expects 100-basis points of cuts in the September quarter and a further 0.25% easing late this year.
In terms of world growth Oster has lowered his global GDP forecast for the current year to a decline of 1.0%, down from a fall of 0.8% previously, which largely reflects even worse conditions in the US than previously expected. Growth in the world’s largest economy is now forecast to fall by 2.8% this year.
While the global economy should bottom either late this year or early in 2010 Oster expects any recovery will be a subdued one, with growth in 2010 to be below trend levels. His revised forecast calls for global GDP growth next year of 2.25%, down from 2.5% previously.