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Mixed economy continues to weigh on confidence

Mixed economy continues to weigh on confidence

NAB's latest monthly business survey shows that Australia’s economic outlook continues to be “mixed and patchy”.

The survey revealed overall conditions have dropped four points to +6 index points, with all three components – trading, profitability and employment conditions – falling throughout July.

“But despite the falls, both trading conditions and profitability remain relatively elevated [compared to earlier this year],” the survey noted.

Conditions varied greatly across the industries during July, however the service sectors continue to outperform.

“The ‘bellwether’ wholesale industry remains at weak levels, although this could reflect an element of margin squeeze due to AUD depreciation rather than a sign of weakness in the broader economy – wholesale purchase costs have increased considerably. Other leading indicators, such as forward orders and capacity utilisation, generally eased,” the survey said.

Not surprisingly, the survey noted that mining investment is declining sharply, public spending is limited and national income growth is weak amidst declining commodity prices.

“Meanwhile, monetary policy is highly stimulatory and the AUD is acting as a shock absorber, with tentative evidence of further recovery in non-mining activity,” the survey noted.

“Expectations for elevated unemployment imply that rate hikes are unlikely until the recovery in non-mining activity is more entrenched (late 2016 in our view).”

Business confidence also dropped back, falling four points to +4 in July.

“While confidence eased in most industries, much of the change stemmed from mining and construction firms (which includes a large share of non-residential and engineering firms), suggesting an escalation in Chinese growth concerns could be putting firms on alert,” the survey said.

Mixed economy continues to weigh on confidence
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