Business conditions slump to 4-year lows

July 17th, 2013

NAB NAB Business survey; Chinese CPI; Overseas arrivals/departures

  • Disappointing business survey. The NAB business confidence index improved from +0.7 points to +2 points in March while the business conditions index weakened from minus 2.7 points to minus 7 points – the weakest outcome since May 2009. The survey was conducted from March 22 to 28.
  • Subdued Chinese inflation. China’s consumer price index fell by 0.9 per cent in March to stand 2.1 per cent higher than a year ago. Economists had tipped a 2.5 per cent gain over the year.

 

  • Tourist arrivals eased in February: The number of tourists arriving in Australia fell by 0.7 per cent in February. Tourist departures fell by 0.1 per cent in the month. A total of 8,248,800 Aussies travelled overseas over the year to February - the highest result on record.
  • In February 57,100 tourists from China came to Australia, up 18.5 per cent on a year ago. China has continued to extend its dominance as the second largest source of tourist arrivals with a record 653,700 Chinese tourists visiting Australia over the year to February.

What does it all mean?

  • The surprisingly soft business survey isn’t of immediate concern. Consumers are spending a little more freely but businesses aren’t yet seeing a huge impact in their operations. It is likely that the improvement in housing and retail activity should filter through to better readings on business confidence and conditions in coming months.
  • However what is clear from the latest survey is that it will be a fair while yet before the weakness in business conditions is alleviated to any great degree. The survey of business conditions is hold at the lowest levels in nearly four years. And even more disappointingly the key sub-indices were also showing no significant signs of improvement. Employment trading conditions and profitability were all decidedly weak, and while forward orders contracted at a slower pace, it was the 24th consecutive month of contraction.
  • In addition the proportion of businesses seeking finance fell to a record low 76 per cent. Clearly the weakness in manufacturing and ongoing global uncertainty is weighing on business investment plans.
  • The Reserve Bank would be well aware that the modest improvement across the broader economy is only in its early stages and the majority of businesses are yet to feel a monumental shift in conditions. As such it is likely that when it comes to monetary policy the Central Bank will continue to maintain an easing bias over the next couple of months. Interest rates are unlikely to be cut further however the mixed economic data will ensure the Reserve Bank stays on the sidelines.
  • The rather subdued readings on Chinese inflation are certainly a positive for Chinese policymakers. Consumer prices actually fell by 0.9 per cent in March while over the year inflation was closer 2 per cent. Even business inflation was going backwards at a faster rate. Whichever way you cut it inflation looks to be well and truly contained – effectively ensuring that authorities can stimulate activity if they deem it is necessary.
  • A lot has been made of the higher Australian dollar and the adverse impact on domestic exporters. However the same impact does not seem to be playing out when it comes to the tourism sector. In fact despite the high Aussie dollar, a record number of tourists are coming to Australia, with much of the growth from China and other Asian countries. And more importantly an ongoing improvement in the global economy will continue to be of benefit to the tourism sector. A growing tourism sector acts to diversify income flows to the country away from resources and rural exports.

Savanth Sebastian, Economist, CommSec, Twitter: @CommSec

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].