Monthly Business Survey – February 2012

Confidence retreats while conditions edge higher. Forward indicators remain weak. Retail, manufacturing and construction still struggling while services, transport and […]


Confidence retreats while conditions edge higher. Forward indicators remain weak. Retail, manufacturing and construction still struggling while services, transport and mining strong. Growth lowered locally.

  •  Businesses appeared less confident about near-term activity in February than in January. While overall confidence remained positive, uncertainty emanating from the euro-zone and financial markets, the persistent strength in the Australian dollar and the decision by the RBA to keep rates on hold in February may have weighed on the confidence of some sectors.
  •  Business conditions improved a little in February, supported by a solid pick up in trading conditions and a slight rise in profitability, partly offset by a softening in employment conditions. Overall, while this month’s activity reading was slightly better, forward indicators of demand generally softened, suggesting near-term activity may continue to drift. Credit demand picked up solidly in the month, following particularly weak outcomes in the previous two months. Overall, the survey is consistent with underlying demand growth of around 31⁄2-33⁄4% and GDP (ex. coal) growth of around 31⁄4% in early 2012.
  •  Conditions improved significantly in wholesale and transport & utilities in February, unwinding heavy falls in the previous month, while they deteriorated modestly in retail and mining. By state, conditions strengthened markedly in WA, while Victoria was the only state to report deterioration in conditions.
  •  Labour and purchase costs growth picked up in February. Product price growth also strengthened, although overall price pressures appear to be fairly well contained.

Implications for NAB forecasts:

  •  Global financial and commodity markets stabilised somewhat in early 2012 in the wake of the European Central Bank’s massive LTROs operations. While helping bank liquidity, the pace of global economic growth has slowed further – reflecting the lagged impact of higher rates in developing economies, financial market volatility and the emerging European recession. As well as the Euro-zone recession, activity fell toward the end of the year in both the UK and Japan and there was weakness across Brazil, India and many of the Asian Tiger economies. Policy is now moving into loosening mode to help offset these impacts. By contrast, growth in the US and China remained on track. That said, our global growth forecasts remain unchanged (at 31⁄4% in 2012).
  •  Weakness in the domestic economy in Q4 has continued into the early months of 2012. With business conditions tracking sideways and forward indicators from the NAB survey still weak, GDP growth (ex mining) is expected to be around 31⁄4% (6-month annualised) in Q1. Consumer spending remains subdued, and forward indicators for building and the labour market are flat. However, major minerals projects continue to place upside on engineering and infrastructure construction and commodity prices, although off their peaks, remain elevated. Our GDP forecasts have been lowered to 31⁄4% (from 33⁄4%) in 2012 but lifted marginally to 33⁄4% (from 31⁄2%) in 2013.
  •  Our inflation forecasts broadly unchanged with core (ex carbon tax) inflation at 2.2% over 2011/12, and 2.5% over 2012/13. The RBA may cut again (tentatively in May) if the exchange rate stays high & banks experience elevated funding costs. That is, tighter financial conditions not collapsing demand is the key.


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