Australia | Feb 12 2009
By Chris Shaw
National Australia Bank’s monthly business survey for December revealed both business conditions and confidence levels declined, so it is no surprise the data for the December quarter also show a weakening in both measures.
Business conditions were down 12 points to a reading of minus 16 points in the quarter, which is the lowest reading since 1992. A number of measures contributed to the decline, with trading down five points, profits down eight points and employment down a far more significant 18 points.
Confidence levels also fell to a new quarterly low of minus 31 but group chief economist Alan Oster suggests an even greater concern was the fall in expectations for business conditions and capital spending plans as these point to further declines in economic activity. A fall of 20 points in forward orders to a reading of minus 20 supports this view of weaker activity levels going forward.
Overall, Oster suggests the data show businesses are positioning themselves for tougher conditions in coming months by shedding labour and pulling back on spending plans, with the risk in his view being actual outcomes come through below current expectations with respect to these measures.
The data also show the labour market is weakening as Oster notes the number of firms reporting difficulties in finding suitable employees has fallen from 23% previously to only 11% now. This has flowed through into a fall in capacity utilisation in the quarter to 80.9%, a decline of 0.9% from the September quarter. Also, this represents the lowest reading since March 1992.
The quarterly data haven’t resulted in any changes to Oster’s estimates for both the Australian and global economies, meaning he still expects a domestic recession this year and an overall decline in GDP in Australia for 2009 of 0.25%. There should be a modest recovery in 2010, with DGP growth increasing to 1.0% next year on his forecasts.
With respect to world growth Oster is forecasting an increase of just 0.25% this year and while 2010 should be better at 2.5% he points out this remains below trend levels. Assuming his estimates for this year prove correct it would be the lowest rate of world economic growth since World War II.