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NAB warns of more economic risk on the way

NAB warns of more economic risk on the way

Despite signs of steady recovery in non-mining activity, a recent survey has suggested that there are longer-term risks becoming increasingly apparent for the country’s economy.

According to NAB’s monthly business survey for July, while the Australian economy continues to show an ongoing recovery in the non-mining sectors in the short term, longer-term risks are arising, particularly going into 2018.

Amidst external threatening factors like Brexit and the federal election, the survey found that business confidence remains relatively positive with the index easing slightly to +4 index points (from +5), which is slightly below the average of +6.

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Business conditions (an aggregation of trading conditions (sales), profitability and employment) also lost some ground, slipping back in July to +8 index points (from +11), but remains above its long-run average of +5.

According to the survey, service sectors continue to be the best performing industries, with retail conditions increasing by 12 points.

Construction and personal services industries also saw a modest improvement (both up by 1).

Meanwhile, signs of a broadening recovery in recent months have become more obscure following sharp deteriorations in transport and wholesale conditions which both dropped by 18 points.

The largest deterioration was seen in mining which was down by 70 points in July, while conditions in finance/property/business (FPB) services also weakened (down 3).

Despite the survey’s leading indicators pointing to a positive near-term outlook, NAB chief economist Mr Oster pointed out that “the longer-term risks are becoming increasingly apparent, particularly going into 2018 as resource exports flatten and dwelling construction turns negative”.

“These headwinds will require additional policy action to support growth and lift inflation back within the RBA’s target band,” Mr Oster said.

“We now see the RBA doing two more 25bp in May and August (to a new low of 1 per cent, and thereafter raises the prospect of the RBA thinking about the use of non-conventional monetary policy measures,” he added.

[Related: Business confidence weakens in June]

NAB warns of more economic risk on the way
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