National Australia Bank’s quarterly business survey reveals a two-speed “patchwork economy” where the construction and services industries benefit from low interest rates, while commodity dependent companies lag.
Business confidence also dropped below the long-run average of the bank’s business survey in the last quarter of 2014.
NAB said business conditions were broadly unchanged, remaining at positive 4 index points, while confidence fell 4 points to post a reading of positive 2 index points — well below the long-run average level of 5 points.
The results show sentiment and business conditions “are generally consistent with a patchwork economy,” NAB chief economist, Alan Oster, said.
Although confidence eased in the three months to December 31, business conditions held up during the quarter, thanks to a surprisingly strong October result which proved to be short lived.
While interest rate sensitive sectors such as construction and services are strong, conditions remained softer in all other industries, particularly mining, which has been hit by the downturn in commodity prices, Mr Oster said.
The depreciation in the Australian dollar, which has fallen to multi-year lows, was helping to cushion the impact of commodity price falls for the mining sector, while industries with high import costs saw a larger impact on their conditions from the currency’s decline.
On the outlook, companies’ expectations of business conditions in three and 12 months time both eased, and the bellwether wholesale industry conditions also deteriorated, suggesting business conditions were likely to remain mired, Mr Oster said.
Investment expectations for the next 12 months suggested some pick up in spending will come, with NAB saying the latest official capital expenditure survey suggested there will be an increase in non-mining investment — although not sufficient enough to offset the “unfolding cliff” in mining.
NAB said inflation was subdued in the quarter, rising only 0.1 per cent during the three months, as soft wage growth saw retail prices ease modestly in the group’s survey, contradicting the stronger core inflation figures reported by the Bureau of Statistics.
This news story is reprinted from www.businessspectator.com.au
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