Australia | Feb 18 2010
By Chris Shaw
Australian business conditions recorded broad based gains in trading, profitability and employment in the December quarter, enough to see the National Australia Bank Quarterly Business Survey post a four points gain to a reading of plus nine, its strongest result since March of 2008.
Business confidence also rose, gaining two points to a reading of plus 18, a level not achieved since December of 1994. Government stimulus programs, rising equity and property prices and improving business outcomes have all lifted confidence in the view of Alan Oster, the bank's chief economist, while the stronger business conditions result reflected general improvement across most industries and states.
Oster does point out manufacturing conditions remain poor despite the overall improvement in business conditions, while agribusiness also deteriorated in the quarter and is currently generating negative readings.
Against this finance, property services, residential construction and construction services all performed well, while South Australia and Western Australia were the strongest states and Queensland continues to suffer from weakness in the tourism sector.
The numbers show an increase in forward orders to levels of December 2007 and as this implies stronger demand, Oster suggests businesses have begun to rebuild their stock levels. Also improving, according to the data, are capital expenditure intentions over the next 12 months, but Oster notes this is still only consistent with business investment posting a moderate recovery this year.
Along with the stock rebuild there has been a rise in capacity utilisation, which gained 0.8 points in the quarter and now stands at 81.3%. The survey showed average hours worked rose strongly in most industries, while demand constraints continue to ease and fewer firms are reporting sales and orders are constraining output.
While Oster notes there are some signs of moderate wage pressures returning, the strong Australian dollar is keeping a lid on inflationary pressures, as evidenced by retail price inflation continuing to weaken slightly.
On the back of the survey results Oster makes no fundamental changes to his forecasts for Australian growth, expecting a result of between 0.75% to 1.0% for the December quarter and growth of 1.0% for 2009 as a whole.
For 2010 he expects Australian GDP growth of 3.0%, rising to 3.75% in 2011. This implies unemployment falls to around 4.75% by the end of 2010 and to 4.25% by the end of 2011. Oster expects the Australian dollar to reach parity against the US dollar by the middle of this year, before declining to around US97c by year's end.
Core inflation is forecast to be 2.3% by the end of this year and 2.6% by late in 2011. Oster expects the Reserve Bank of Australia (RBA) will lift the cash rate to 4.75% by late this year and 5.5% in 2011. The likely timetable for rate hikes this year is May, June, August and November, with each increase to be 0.25%.
For global growth Oster is forecasting 3.5% this year and almost 4.0% in 2011, this is underpinned by expected strong growth in China and a recovery in non-Japan Asia.
