Business confidence improves in December on good news for world economy: NAB survey

Economic improvement overseas has led to a jump in business confidence during December, according to the latest figures from the NAB monthly Business Survey – although conditions haven’t improved at all.

The result comes after a disappointing November for business confidence, during which SMEs grew weary of reports the American economy was heading towards the so-called “fiscal cliff”.

NAB economist Alexandra Knight says the result has mostly been influenced by “external factors”.

“If you look at business conditions, they’ve remained quite weak and you’re not seeing any pick-up at this stage. But businesses are in general a lot more confident.”

The figures show the indexes for trading, profitability, employment, forward orders, stocks and exports all remained negative, although most recorded some improvement. NAB also pointed out capacity utilisation, CAPEX and credit demand are not at record low levels.

Wholesale business conditions are now at their lowest level since the survey began in 1997, after remaining static since November. Labour costs continued to rise, although remained contained, while purchase prices and product prices moderated slightly.

But confidence has risen from a -9 reading in November to a reading of +3.

“Financial markets have lifted as confidence builds on a global recovery,” NAB said. “Central bank action in the eurozone, United States and Japan has helped sentiment but growth to remain subdued in 2013.”

NAB pointed out that with indicators suggesting economic activity remained weak in December, “it is likely that much of the change in sentiment was a result of improvements in financial and equity markets”.

“Offshore, a last minute agreement to avert the US ‘fiscal cliff’ in early January (just prior to the commencement of surveying), as well as signs of strengthening in Chinese activity, all helped.”

Some industries have fared better than others. Conditions in wholesaling have declined, and the sector is now the worst performing overall.

“It is likely that generally poor conditions in industries that utilise wholesale services – primarily retail and manufacturing – are compounding the weakness in this industry,” NAB said.

Confidence has increased across all industries, except in wholesaling.

“The general improvement in sentiment is likely to have partly reflected some resolve on the US ‘fiscal cliff’ front, the additional interest rate relief provided by the RBA at its meeting in December, as well as the general strengthening in local equity markets.”

Knight says given business confidence has been improved or weakened by economic news, some key metrics are set to have an impact soon including the RBA meeting in February, and even the Queensland floods.

“In the short term with the Queensland floods, we may see a reaction to that. We’re just going to have to wait and see.”


Notify of
Inline Feedbacks
View all comments