Confidence rises as business conditions linger ‘well above average’

Data from NAB’s latest Monthly Business Survey show that, in December 2017, business confidence jumped by 4 points to +11, its highest point since July 2017.

NAB has attributed the rise to an improvement in the global economy.

Meanwhile, the business conditions index remained at +13 index points, “well above” the average of +5.

NAB group chief economist Alan Oster claimed that the figures are a promising sign for investment.

“This has helped to narrow the perplexing gap between business conditions and confidence evident over the past couple of years, and is an encouraging signal for investment. 

“That said, while business conditions have held at a high level through 2017, they have tended to outperform measures of activity in the national accounts in recent times.”

Mr Oster also noted the continued strength of business conditions in the construction industry, spurred on by demand for residential housing.  

“The construction industry is performing well, thanks to support from a large pipeline of residential construction and stronger non-residential building approvals,” Mr Oster added.

The NAB executive went on to say that he wasn’t surprised by the results, and he predicts further improvements in the coming months, despite expecting the Australian economy to face “significant challenges”. 

“Overall, the survey results for December remain broadly in line with our view of the Australian economy.

“There continue to be a number of significant challenges to the outlook,” the NAB chief economist said, “but we remain hopeful that Australia will see temporarily above-trend economic growth in [the] coming quarters, thanks to support from improving business investment and elevated levels of infrastructure construction.”

Mr Oster has also predicted a lift in the cash rate from the Reserve Bank of Australia (RBA), but he acknowledged the regulator’s concerns over slow wage growth and softening property market conditions. 

“[Improvements in business conditions] should be sufficient to prompt the RBA to consider a gradual removal of emergency policy stimulus, although the RBA will need to see wages growth move upwards, at least gradually. Softer trends in some corners of the property market may also heighten their caution.”

Concluding, Mr Oster said: “We maintain our expectation for the first RBA hike to come in the second half of this year, but only if the labour market and wages improve further and the property market holds steady.”

[Related: RBA to raise rates by 25 bps in August: NAB]