Australia: Moderation in the non-mining economic recovery - NAB

Research Team at NAB, suggests that the NAB Monthly Business Survey is now suggesting some moderation in the Australia’s non-mining economic recovery, with the aggregate level of business conditions (a combination of trading, profitability and employment conditions) dropping in October – the trend has also steadily eased from its most recent peak in May.

Key Quotes

“Despite the subdued trend, business conditions remain at above average levels and business confidence has been tracking broadly sideways for some time – albeit easing in the month as well. In October, the business conditions index fell 2 points, to +6 index points, which is slightly above the long run average of +5.

There was a narrowing in business conditions across industries in the month, although this was partially the result of deterioration in conditions for the best performing (services based) industries. However, a noticeable improvement in retail conditions was encouraging, although the trend remains quite soft. By component, both trading and employment conditions deteriorated – although the former remains elevated – while profitability was steady. Inflation measures in the Survey have been subdued and generally moderated further in the month.

Business confidence has proven to be relatively resilient this year, but did moderate in October – falling 2 points to +4 index points (below the long-run average of +6). While we would like to see confidence at higher levels as a precursor to stronger non-mining business investment, this could still be interpreted as a solid outcome, particularly given the global political uncertainty ahead of upcoming elections.

We are clearly more concerned than the RBA about the near term 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 low inflation and a more subdued growth outlook.”