NAB Monthly Business Survey – March 2015

• There were some tentative signs of improvement in the NAB Monthly Business Survey for March – with the post RBA cut fall in confidence reversed in March. Surprisingly, the lift was particularly pronounced in mining, although confidence is still lowest for this industry. Elsewhere outcomes were mixed, suggesting some industry specific factors are also at play. Transport & utilities posted the second largest gain, while retail and manufacturing were the only industries to deteriorate.
• In March business conditions recorded a notable lift, with each component (trading, profit, employment) posting an improvement – although employment continues to be relatively muted. This level of conditions is pointing to a slightly above average rate of activity, although the trend is somewhat softer. If maintained it could well boost confidence further. By industry, there was a surprisingly strong improvement in conditions for the ‘bellwether’ wholesale industry, while construction improved significantly as well. In contrast, mining and retail were the only industries to record a (slight) deterioration. The export index is yet to respond to the more favourable AUD, while orders are soft (and down slightly). Capacity utilisation and capex, encouragingly, both improved.

Implications for NAB forecasts (See latest Global and Australian Forecasts report also released today):

• Global growth remains stuck at a sub-trend pace. After 3.3% in 2014 we now expect only 3.4% in 2015. While the Euro-zone and Japan are experiencing upturns, recent US data has disappointed. We have delayed the Fed starting till September (or later) and reduced US GDP in 2015 to 2.7%. March quarter business surveys do not suggest any acceleration in advanced economy growth – which we require to achieve the 2015 forecast. With Chinese growth slowing and weak outcomes across the rest of East Asia and Latin America, there is no evidence of an upturn in emerging market economy growth either. Emerging market economies make only a minimal contribution to the 2015 forecasts with the Chinese slowdown offsetting faster Indian growth.
• We have fine tuned but not fundamentally changed our forecasts– 2014/15 2.3% and 3.0% in 2015/16. The big picture in Australia is still one where the non mining sector is struggling to offset the impact on domestic demand of sharply lower mining investment. Further falls in commodity prices are lowering income flows. A particular concern is the weak medium term outlook for non mining investment, while the consumer remains cautious. As a result we still see unemployment rising to 6.7% by end 2015. While the March business survey was encouraging, business confidence remains weak and business conditions in Q1 were still sub trend – we will need more readings to be sure that tentative signs of better non mining activity are becoming entrenched.
• We still see another rate cut – most likely May but it is possible that if the economy continues to improve, the cut could be further delayed. We are not forecasting a second cut to below 2% – we see that possibility at 35-40% – significantly below the market’s current view (fully priced). We see rate rises starting again by late 2016.

For further details, please see the attached documents.

• Monthly Business Survey – March 2015 (PDF, 201KB)

Also available:

• Global & Australian Forecasts – April 2015 (PDF, 650KB)