The recovery of the non-mining sector may finally be running out of steam and the slowing growth outlook could lead to further interest rate cuts in 2018, new survey results from National Australia Bank show.
NAB’s monthly business survey shows business confidence improved modestly in November but business conditions dropped further – falling to the long-run average level for the first time since April 2015.
NAB chief economist Alan Oster said that while the conditions sub-index, at +5.0 points, was still at its long-run average, the declining trend raises concerns about the direction of the non-mining recovery in the near term.
“The downward trend in business conditions and signs of weakness in the third quarter National Accounts – beyond one-off influences such as poor weather – lend further support to this view,” Mr Oster said.
The retail industry continued to be a major drag on conditions, despite signs of improved retail sales recently, and now has the equal worst business conditions, along with mining. Transport has also performed poorly, in part related to rising oil prices.
The deterioration in November was largely driven by profitability and trading conditions, with employment conditions staying steady at subdued levels.
“Subdued orders suggest some risk to the near-term outlook but tighter capacity utilisation is encouraging for longer-term economic prospects,” Oster said.
NAB expects the rally in commodity prices to be short-lived, and it is unlikely to translate into higher investment or wages at this point in the commodity cycle.
“Two more 25 basis point rate cuts are still expected from the Reserve Bank next year in response to ongoing low inflation and a more subdued growth outlook,” Mr Oster said.
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