Key Points:

• Clearly the most surprising feature of the Survey was the sharp jump in business conditions in October (the largest monthly increase in the history of the survey). The improvement driven by sales and profits was relatively broad based –unlike the (short-lived) jump in July. While welcome we remain cautious re the sustainability of the improvement. For example it does not sit well with further falls in business confidence and only marginal improvement in capacity utilisation. While the falling AUD may have helped many sectors, it is probably also behind the large falls in the wholesale and transport/utilities sectors. The jump in conditions also saw employment improve somewhat – consistent with other labour market partials.
• In that context the further fall in business confidence was surprising. This is the first time since 2012 that confidence has dropped below conditions, suggesting firms remain uncertain over near-term demand in their industry. Confidence levels vary greatly across industries, but services have consistently been the most optimistic. To complete the mixed messages about the future, forward orders improved significantly but conditions in the ‘bellwether’ wholesale industry are still quite weak.
• GDP forecasts up slightly: 2014/15 2.9% (was 2.8%) and 2015/16 3.2% (unchanged). Unemployment still to peak at around 6½% and no change in cash rate expected until tightening begins near the end of 2015.

Implications for Forecasts

• Recent monthly economic indicators and business surveys show continued moderate global economic growth along with big variations between the major economies. Low interest rates, falling oil prices and smaller budget cutbacks in big advanced economies should underpin a gradual acceleration in growth to 3½% in 2015. Global economic growth remains heavily reliant on the continued good performance of China and the US with weakness across Japan, the Euro-zone and Latin America and a sluggish performance in Emerging East Asian economies.
• Jump in Australian business conditions points to strong start to Q4 but growth still constrained by weak terms of trade, soft labour market and signs of a softening in building cycle. GDP forecasts up slightly: 2014/15 2.9% (was 2.8%) and 2015/16 3.2% (unchanged). Unemployment still to peak at around 6½% and no change in cash rate expected until tightening begins near the end of 2015.

For further analysis download the full report.

• Monthly Business Survey – October 2014 (PDF, 232KB)

Also available:

• Global & Australian Forecasts – November 2014 (PDF, 533KB)