Australian businesses sentiment was generally buoyant in August, underpinned by business conditions which are still above the long-term average despite some headwinds in the retailing sector. In NAB’s latest monthly business survey, the Business Conditions Index moved 2 points lower from a revised July figure of 9 (previously 8) to 7 while the Business Confidence Index rose 2 points to 6. St. George Bank senior economist, Jo Horton, said the survey “results were relatively upbeat following some disappointing numbers released by the Australian Industry Group earlier in the month.”
Last month NAB’s chief economist Alan Oster changed his view on official interest rates over the next 12-18 months on the basis GDP growth is likely to slow, following a deterioration in conditions in the transport and wholesale sectors. August figures suggest the non-mining segment of the economy is improving but some parts are “a cause for concern”. “The strength in business conditions remains largely confined to the major services and construction industries, while relatively subdued conditions in wholesale and retail warrant close monitoring…It points to a patchy, but sustained, improvement in the non-mining economy.”
The latest figures have not altered the NAB economist’s views of what is in store for Australia and the two 25bps cuts he expects the RBA to hand out in 2017. “Beyond the near-term, as the effects of previous AUD depreciation, higher commodity exports and the housing construction cycle begin to wane, the outlook becomes more uncertain. All of these factors are expected to come to a head around 2018, and the economy will likely require additional policy support from the RBA ahead of this to firm up growth and stabilise the unemployment rate.”
