Australian business conditions were robust in the first half of 2018 and hit a record high in April. The latest readings may be lower than those in the first six months of 2018 but they still remain at historically elevated levels. According to some observers, the business conditions index is a good guide to GDP growth. Thus, the current spate of high readings bodes well for Australia’s GDP outlook.
According to NAB’s latest monthly business survey of 400 firms conducted in the last week of August, business conditions remained at a very healthy level. After revisions, the index inched up from 13 at the end of July to 15 in August. NAB chief economist Alan Oster said, “This is a welcome sign of a stabilisation in business conditions”.
Typically, NAB’s confidence index leads the conditions index by approximately one month, although in recent months the two surveys have diverged and the condition index has led the confidence index higher in trend terms since late 2014. The confidence index lost 3 points to register 4 on the index in August, which is below the long-term average reading of 6 and back to levels last seen in July 2016.
Westpac senior economist Andrew Hanlon referred to the change of prime minister as a source of uncertainty for the business sector. “The change of prime minister on August 24 and the associated uncertainty around public policy, likely dented business sentiment. This is something to watch; will sentiment snap back in September or will uncertainty around policy remain a concern?”