Business confidence brightens in December
Tuesday, January 31, 2012/
Business confidence improved across almost all industries in December, according to the latest NAB survey, but business conditions were unchanged after picking up slightly in November.
NAB’s Monthly Business Survey shows business confidence improved in December despite the European debt crisis. Confidence rose by one point to +3 index points in the month.
The biggest improvements in confidence were in mining, followed by construction, manufacturing and wholesale.
“In level terms, construction was the most confident (+12 index points) – no doubt influenced by rate cuts and a significant improvement in conditions,” the survey said.
“Mining (+11), wholesale (+10) and manufacturing (+9) were also relatively optimistic.”
“In contrast, finance/business/property (-1) transport and utilities, and recreation and personal services (both +2) were the least confident.”
On a state by state basis, business confidence strengthened significantly in WA, while NSW and Tasmania recorded modest improvements.
“Confidence deteriorated sharply in Queensland, weakened slightly in SA and was unchanged in Victoria. Trend confidence levels were strongest in WA and Queensland,” the survey said.
Meanwhile, the business conditions index was unchanged at +1 index point in December, after picking up slightly in November.
According to NAB, the business conditions index remains consistent with its long-run average, suggesting the economy is running close to trend.
“RBA’s recent rate cuts in November and December 2011 appear to have helped interest rate-sensitive sectors of the economy in December,” NAB said in its report.
“While conditions remained divergent across industries, the gap between the strongest and weakest industries has narrowed over recent months.”
“The outcome for business conditions in December reflected improvements in trading conditions and profitability, which were offset by weaker employment conditions.”
NAB says while the outlook for the domestic economy remains firm, global uncertainty is not helping hiring and investment intentions.
“Forward indicators of activity suggest a slightly weaker start to 2012, with labour market conditions weakening in recent months,” it says.
“As a result, our GDP forecast has been lowered to 3.75% in 2012 (from 4.5%) but is broadly unchanged at 3.5% in 2013.”
“Consistent with this, we have softened our core inflation forecasts – we now expect 2.2% over 2011/12, rising to 2.6% over 2012/13. We now see the RBA lowering cash rates twice in 2012.”
“As well as the February cut, weaker near-term demand and price forecasts, together with uncertainty on the extent of bank pass-on given higher funding costs, point to an additional cut in mid 2012 – possibly in August.”
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