March 27, 2024

NAB Business Pulse: April 2024

The good news is business conditions are up again. So, what’s driving them? We put you in the know.

From interest rates to inflation to business confidence, we take a look at the key numbers affecting Australian businesses this month.

First rate cut forecast for November

The cash rate remains at 4.35% for now with little chance of further hikes, according to NAB Economics forecasts. That said, we’ll most likely have to wait until November before we see the first rate cut from the Reserve Bank – although if inflation continues to decline (helped by the recovery in supply-side issues and a more subdued growth in demand) the cash rate is likely to fall back to around 3% by the end of 2025.




Inflation still in check

Recent figures indicate inflation will continue to make gradual progress towards the RBA’s target band, NAB Economics reports, returning to just over 3% by end-2024. However, Group Chief Economist Alan Oster warns further improvements are unlikely to be linear. He points out that there are still plenty of risks out there that might throw us off course – enough reason for the Reserve Bank to remain cautious when it comes to adjusting the cash rate.




Minimal growth but better times ahead

GDP growth was all but non-existent towards the end of 2023 – down to 0.2% in the fourth quarter, according to the recent National Accounts. So what about this year? While NAB Economics expects modest growth of 1.7%, there are signs of a better second half, thanks to a pick-up in household consumption as inflation improves. Meanwhile, the indications are for a stronger 2025 with growth at 2.25% for the year.




Business conditions take a turn for the better

Last month, business conditions were up 3pts to +10 index points, a little above the long-run average. It helped that there was a rise in trading conditions and profitability. Both gained 4pts, according to NAB’s latest Monthly Business Survey. Nevertheless, business confidence remained low, as did forward orders – particularly for retail where conditions were also weak.






Aussie dollar expected to rise

The Australian dollar traded around US65c in March, largely reflecting the ongoing strength in the US economy. But given the US Federal Reserve is likely to start cutting its cash rate before our Reserve Bank does, NAB’s FX strategists believe the dollar will rise to US72c by the end of 2024, up to US78c by end-2025.





Unemployment back under 4%

There was good news recently when it came to the labour market. Unemployment fell to 3.7% in February, down from 4.1% in January. As Oster says, the improvement in February shows that the higher numbers in prior months were partly the by-product of seasonal factors – rather than a rapid deterioration in the labour market. And while unemployment is still likely to rise over the remainder of the year, outright declines in employment are unlikely.