Monthly Business Survey – January 2012

Confidence and conditions a touch better but economy still marking time. Sectors remain wide apart. Inflation weakening as retailers increase […]


Confidence and conditions a touch better but economy still marking time. Sectors remain wide apart. Inflation weakening as retailers increase discounts and one more rate cut possible.

  •  Overall business confidence was relatively firm in the month, with businesses seemingly still taking relief from the recent RBA rate cuts as well some abatement of concerns about Europe. Nonetheless, labour market conditions remain soft and the overall outlook for near-term activity remains moderate.
  •  Business conditions strengthened a little in January when viewed as a whole. However, when the components of business conditions – profitability, employment and trading conditions – are analysed individually, the story appears a little different; profitability deteriorated in the month, while employment and trading conditions were unchanged (an artefact of seasonal adjustment: see page 5). Overall, this month’s activity readings were broadly unchanged from December but forward indicators improved so activity may strengthen a little. Credit demand also was particularly weak in the month – moving to new lows in the proportion of firms not wanting credit. Overall, the survey is consistent with underlying demand growth of around 31⁄2% and GDP (ex. coal) growth of around 31⁄4% in early 2012.
  •  Heavy falls in conditions in wholesale, transport & utilities, and construction were broadly offset by improvements in mining, manufacturing and recreation & personal services. Conditions deteriorated sharply in SA and Tasmania, but strengthened modestly in Victoria and Queensland.
  •  Labour and purchase costs growth softened for a second consecutive month in January. Product prices fell slightly in the month, while retail prices fell by more, recording the weakest outcome in six months.

Implications for NAB forecasts:

  •  We have not revised our latest Global and Australian forecasts for activity. The US economy continues to surprise on the upside, with forward indicators suggesting a modest recovery is underway. The Euro- zone appears to have entered recession, while emerging economies continue to show signs of slowing. We continue to see global growth softening to around 31⁄4% in 2012, a below-trend outcome highly dependent on the emerging economies as the OECD faces a long period of modest growth.
  •  Our forecasts for domestic activity and inflation also are unchanged. Forward indicators of activity and employment imply a soft start to 2012 while the expected coal export rebound now appears less robust than anticipated. We expect GDP growth of around 31⁄4% through the year over the forecast period – or in year averages 33⁄4% in 2012 and 31⁄2% in 2013. Our activity and inflation forecasts are almost identical to those now published by the RBA. We have, however, adjusted our forecasts for the cash rate in light of the RBA’s non decision in February (see change to forecasts). While a line ball decision, there may just be room for one further RBA cut in mid 2012 (May), based on tightening financial conditions (bank funding costs and high AUD). Thereafter, we see the cash rate unchanged until mid 2013 when rates will be under upward pressure from wages and a strengthening labour market.

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