Business confidence rising despite turbulence, says NAB

Australian businesses are increasingly confident on the economy despite recent financial market gyrations, says NAB.

Firms are choosing to look at the positives, says Alan Oster.

Australian businesses are increasingly confident on the economy despite the financial market gyrations seen last month in the face of a surprise win for the “Leave” vote in the Brexit referendum.

NAB’s closely-watched business survey for June tested the sentiment of local firms through both the uncertainty of the federal election as well as the political unease in Europe and consequent market turbulence, with survey responses requested from the day of the UK referendum through until just prior to Australia’s July 2 poll.

Despite this, the business confidence index rose three points to a reading of +6, while the current business conditions index lifted two points to +12. The latter number is well above the long-term average of +5 and in line with post-GFC highs.

“This suggests that firms are looking through external uncertainties, choosing to focus on the positives they see in their own business, at least for the time being,” NAB chief economist Alan Oster said.

“We are very much seeing a continuation of the positive trends evident in the survey for some time now.”

Strength was also seen in the employment index, with the survey pointing to steady job gains in the coming months.

“Strong activity seems to be having a positive effect on labour demand in the survey, despite recent ‘questionable’ official labour market statistics suggesting otherwise,” Mr Oster said.

In May, the unemployment rate dropped to a one-year low of 6 per cent, but job gains have slowed this year compared to the back-half of 2015.

Eagerly awaited June labour force numbers are due out on Thursday.

The survey also showed confidence in the forward outlook, although lacklustre views on inflation point to an opportunity for the Reserve Bank to further cut record low rates later this year.

Retail prices recorded a fall in June, according to the study, with the 0.2 per cent dip following rises of 0.3 per cent and 0.5 per cent in the two months prior.

This contributed to a weaker showing from the retail space, although other industries picked up the slack amid a broadbased improvement in the non-mining economy.

“The deterioration in retail coincides with big declines in retail price growth, highlighting the competitive and cost pressures facing the industry,” Mr Oster said.

“However, we should be able to take comfort in the trends we are seeing across many other industries.”

The banking giant considers the report a mixed bag for the Reserve Bank to digest, with the lack of inflationary pressure leaving the door open to an August rate cut despite signs of robust economic growth.

“These trends justify the highly accommodative setting for monetary policy, but while the August RBA meeting (post Q2 CPI) is likely to be ‘live’, current information suggest rates will remain on hold — although it is likely to be a close call,” NAB said.