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According to the latest NAB Monthly Business Survey, the business conditions index moderated in October, falling by 2 points to +6 index points, which is only slightly above its long run average of +5.
The survey found that business conditions eased across most states during the month, with Queensland the only exception. Although conditions continue to look “solid” in three of the major eastern states, NSW is now showing a “clear downward trend” and Victoria is starting to follow its lead.
Business conditions in NSW dropped by 2 to +10 and in Victoria by 1 to +12. It was a similar story in Western Australia where business conditions fell by 5 points to -9, and in South Australia conditions fell noticeably (down 6 to -1 index points in trend terms).
In trend terms, Victoria has the strongest conditions, while Western Australia remains the weakest.
The survey highlighted that the deterioration in business conditions was seen across most industries, starting with mining (down 12), followed closely by wholesale (down 10). Recreation and personal services (down 10) fell the furthest.
Meanwhile, retail (up 12) and transport (up 9) were the only industries to improve – although the survey emphasised that conditions in both “remain quite subdued overall”.
The survey read: “The recent moderation in some NAB Business Survey indicators is a concerning trend that warrants close monitoring, but our assessment is that the deterioration to date is not (yet) enough to warrant a significant change in the outlook.”
“Beyond the near-term, impetus from those growth drivers will fade which will see the economy slow into 2018. Two more 25bp rate cuts are still expected from the RBA next year in response to ongoing inflation and a more subdued growth outlook.”