Australia's NAB Monthly Business Survey: Moderation in the non-mining economic recovery

Australia's NAB Business Conditions came at 6 vs 8, while confidence stood at 4 vs 6, suggesting some moderation in the non-mining economic recovery, NAB notes. 

Summary

The NAB Monthly Business Survey is now suggesting some moderation in the non-mining economic recovery, with the aggregate level of business conditions trending lower – although it remains above long-run average levels. Business confidence was also down in the month. The recent moderation in some NAB Business Survey indicators is a concerning trend that warrants close monitoring, but our assessment is that the deterioration to date is not (yet) enough to warrant a significant change in the outlook.

However, this may change if the recent trends were to continue. Beyond the near-term, impetus from commodity exports and housing construction 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 on-going low inflation and a more subdued growth outlook.  NAB’s latest Australian economic forecasts will be available on Thursday.

According to Mr Oster, NAB’s Chief Economist, “we are becoming a little more concerned about some of the trends we are starting to see in the Business Survey. While conditions are still at above average levels, if the recent trajectory continues we could be looking at an economy that is rapidly losing momentum. In fact, we are clearly more concerned than the RBA about the near term outlook. In addition to that, business confidence is also back below average levels. That will need to change if the RBA hopes to see their anticipated recovery in non-mining business investment.”

Business conditions continue to look quite varied across the major industry groups in the survey. “While there was some narrowing in business conditions between non-mining industries in the month, this was partially the result of deterioration in conditions for the best performing (services based) industries. There was, however, a noticeable improvement in retail conditions, although the trend remains quite soft” said Mr Oster.