Updated

March 12, 2019 12:32:57

Australia’s economic slowdown is likely to become more entrenched with business conditions and confidence falling further last month.

Key points:

  • The sharp decline in business conditions and confidence late last year continues into 2019
  • Forward looking indicators such as orders and capacity utilisation continue to weaken
  • Retail, and in particular household goods and car sales, are the weakest sectors overall

The highly-respected NAB business survey found there had been a broad-based decline in conditions, with key forward-looking indicators pointing to ongoing weakness.

The collapse in the survey’s measures late last year were an early indicator of the far weaker than expected fourth quarter GDP results showing the economy grew at just 0.2 per cent over the three months to January.

“The decline in conditions was relatively broad-based in the month and continues a relatively sharp decline over the previous six months,” NAB chief economist Alan Oster said.

“The decline in confidence was more modest but the series has now been below average for some time.”

Future prospects dim

The greatest concern lies in the immediate future prospects for business, with the forward orders index and capacity utilisation falling further and both now below their long term averages.

Capacity utilisation is considered an important indicator because it points to both current output compared to existing plans as well as future investment plans. It also signals the likely direction of inflationary pressures.

Profitability and trading (sales) conditions also slipped below their long-term averages.

“This may have important implications for both future investment and employment decisions of business,” Mr Oster said.

The survey reported a particularly sharp decline in conditions in construction and mining.

However, retail declined further and remains the weakest industry by “a significant margin”.

The weakness is broad-based across retail sub-industries, but weakest in car retailing and household goods.

Jobs remained the one bright spot in the numbers, with the employment index remaining fairly resilient in the face of clearly deteriorating conditions and falling confidence.

However, Mr Oster said this may not last as labour demand decisions typically lag economic activity.

Rate cuts

The weaker forward-looking measures will only shorten the odds of the Reserve Bank cutting interest rates this year, particularly as the private sector’s recent lacklustre performance saw it effectively not contribute at all to economic growth in the last quarter.

“Following the release of the national accounts for Q4 2018 — which showed growth has materially slowed in the private sector, the business survey suggests that there has been little improvement in the first two quarters of the first quarter in 2019,” Mr Oster said.

NAB is one of a growing number of banks and financial institutions calling for the RBA to cut its cash rate twice, taking it to just 1 per cent before the end of this year.

Topics:

economic-trends,

business-economics-and-finance,

retail,

australia

First posted

March 12, 2019 11:34:50



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