Business conditions book biggest fall since GFC: NAB survey

The dollar has dipped after NAB’s business conditions survey booked its biggest monthly fall since the GFC.

Construction workers sit outside the David Jones store in Sydney. Picture: AAP

The economic environment in Australia sharply deteriorated towards the end of last year, according to National Australia Bank’s latest business conditions survey, in the biggest monthly weakening in the index since the global financial crisis.

NAB’s monthly survey showed business conditions — which gauge the health of company trading, profits and employment — slumped 9 points, suggesting a significant slowing in the economy will persist into the New Year.

The local dollar dipped on the release of the data at 11.30am (AEDT), slipping from US71.67c ahead of the numbers to US71.42c. The bearish indicator also weighed on the local bourse, with the S&P/ASX200 extending its fall to fresh intra-day lows.

The downbeat figures come as Deloitte Access Economics warned the federal budget’s return to surplus will prove to be a “flash in the pan” as temporary revenue windfalls from a bounce in corporate profits last year are recycled into permanent personal income tax cuts.

Scott Morrison today revealed his pledge to create 1.25 million jobs over the next five years, placing the economy — and the Coalition’s economic record — at the forefront of his re-election strategy.

However, with NAB’s consumer confidence index also remaining below average levels, and company forward orders weakening, NAB chief economist Alan Oster said the decline in the business environment was likely to continue into 2019.

“If business activity has significantly slowed there could be some implications for the labour market and business capex (investment and spending by companies) — two important variables, whose outlook are critical for our outlook in 2019” Mr Oster said.

After peaking at relatively high levels earlier in 2018, NAB’s business conditions index has declined by around 20 points and is now below average.

“Although conditions started the year at relatively high levels, these declines taken at face value suggest a significant slowing in business activity,” Mr Oster said.

Industries that recorded sharp falls in business conditions were broadbased, including manufacturing, construction, retail, finance and property services. Businesses across most Australian states — all but Tasmania — continued to worsen.

With national house prices down more than 6 per cent from their peak last year, with steeper falls in the Sydney and Melbourne markets, analysts are warning the weakening property market could scare consumers into shutting their wallets, filtering through to softer-than-expected economic growth over the short term.

“The business survey provides us with another perspective on weakness in the retail sector following the release of consumer side indicators over the past month,” Mr Oster said, noting that conditions in personal and household goods, as well as car retailing, suggested that discretionary retail was “particularly weak”.

Official statistics released late last year showed a slowdown in economic growth during the September quarter, where GDP growth slipped to its slowest rate in two years.