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NAB survey: Signs of easing in Australia’s economic engine


Australian business conditions moderated in April, with all key indicators settling around their historical averages, according to the National Australia Bank’s (NAB) Monthly Business Survey. This suggests a potential slowdown in economic growth.

The labor market, however, remains a bright spot, although signs of cooling are emerging. The employment index dipped to +2, indicating a potential easing from the previously red-hot hiring pace. Still, positive territory suggests no immediate job losses. Service sectors continued to outperform goods-producing industries, with retail showing the weakest performance.

Forward orders, a gauge of future activity, fell in mining, manufacturing, and construction, raising concerns about near-term demand. However, businesses remain cautiously optimistic. High capacity utilization and continued investment intentions (capex) suggest they are not anticipating a dramatic drop-off.

Cost pressures also showed signs of easing, with both labor and input costs moderating. Retail price growth also slowed, potentially signalling a peak in inflation. Looking ahead, the outlook for Australian businesses is mixed. While growth might cool, inflation might also ease. Here’s a closer look at some key factors:

Interest Rates: Forecasts for Australia’s cash rate remain steady despite a potential delay in US rate hikes. NAB Economics expects the US Fed to cut rates in September, with Australia following suit by November and reaching a rate of around 3.1% by 2025.

Inflation Path: First-quarter CPI figures are expected to show a slight rise in underlying inflation, but the annual rate is projected to ease. Headline inflation is forecasted to drop further by the end of 2025.

Business Confidence: March’s business survey showed stable conditions and confidence, with retail showing some improvement despite remaining the weakest sector. The survey also hinted at a better supply-demand balance with easing capacity utilization.

Labor Market: While still tight with a low unemployment rate (3.8% in March), the labor market is showing signs of easing, potentially due to population growth outpacing job creation.

US Dollar Strength: The Australian dollar has remained relatively stable around US65c. NAB’s FX team expects it to close the year near US69c before rising to US75c in 2025.

NAB Chief Economist Alan Oster said the April survey marks a turning point, with business conditions returning to their historical averages after a period of exceptional strength. This trend reflects a gradual slowdown in economic growth. The moderation in cost growth and retail price inflation is an encouraging sign for the possibility of easing inflationary pressures in the coming months, although the full picture will become clearer in the following quarters.

Anneke Thompson, CreditorWatch Chief Economist said: “NAB’s Business Conditions report indicates that conditions are now back to long term average levels, with businesses reporting a decline in both Trading and Employment Conditions, while profitability conditions remained steady over the month. NAB’s Business Conditions index, on a trend basis, has been slowly declining since late 2022. Forward orders fell by a relatively large 6 points to -7 index points, a further sign that businesses are expecting weaker conditions to come. The industries where forward orders declined by the greatest amount were mining, manufacturing, and construction.

“This data reflects CreditorWatch’s Business Risk Index’s (BRI’s) average value of invoice data, which while recording an increase over the month of March 2024, has been on a strong downward trend since early 2021. CreditorWatch’s data also shows that credit enquiry growth is slowing considerably, and has been mostly in negative territory since August 2023.

“In more positive news, slowing business activity is a positive sign for inflation, particularly given the slowing forward orders in the construction sector, which may lead to some slowing of price growth in materials. The Federal Budget will be watched closely for further help in the fight against inflation, with Treasurer Jim Chalmers earlier revealing that Treasury forecasts for inflation have the figure back within the target band by the end of 2024, well ahead of the RBA’s recent forecast.”

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