Quarterly Business Survey – June 2013

Business conditions struggle in the June quarter and confidence falls back, driven by a pessimistic mining sector. Falling equities and offshore concerns likely to be weighing on sentiment. Little sign yet that lower interest rates and AUD are helping.

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Business conditions struggle in the June quarter and confidence falls back, driven by a pessimistic mining sector. Falling equities and offshore concerns likely to be weighing on sentiment. Little sign yet that lower interest rates and AUD are helping. Conditions still very subdued in trade and consumer dependent sectors. Forward indicators still worrying. Capex expectations a little stronger but mining much weaker. Falling prices imply soft Q2 inflation.

  • Business confidence pared back earlier gains, with the index slipping into negative territory in the June quarter. While better than 2012, confidence remains below long-run average levels. Firms may be worried about falling equity and commodity prices, speculation about US Fed stimulus being unwound and the softening outlook for the Chinese economy. Lower borrowing rates and a falling AUD yet to show up in confidence.
  • Business conditions weakened marginally in the June quarter and remain close to four year lows. The Survey points to GDP growth in the June quarter of below trend 2¾%. Already subdued forward indicators of demand generally weakened in Q2 – especially employment conditions and capacity utilisation – providing little sign that activity will improve into the second half of this year. Consistent with this, firms are having little trouble finding suitable labour in the current environment.
  • Business conditions were especially weak in mining, manufacturing and retail, suggesting lower borrowing rates and a falling AUD have done little to support activity in these industries. The services sectors continue to outperform all other industries, but even these appear to have been adversely affected by weakness elsewhere. Conditions weakened across all states in the quarter with the exception of NSW. Weakness was particularly evident in WA, where the mining slowdown is gaining traction.
  • Business investment intentions (next 12 months) improved a touch in the June quarter but remained low relative to outcomes a year or two ago. While investment intentions of the non-mining sector generally improved, the lift is unlikely to be sufficient to fill the ‘gap’ from the slowing in mining investment. Near and longer term employment expectations fell back, pointing to more labour market weakness. Lack of demand is expected to be the most significant factor impacting profitability over the next 12 months and concerns about tax & government policy remain important.
  • Product prices fell for the first time in the history of the survey in the June quarter, recording annualised deflation of 0.2%. Price inflation was less subdued in the retail sector, recording no growth in Q2, but this outcome still points to a very soft June quarter core inflation outcome. Labour and purchase costs remained modestly below-average levels.

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