Tough times ahead, so the federal government’s $8.7 billion of stimulation over the next fortnight will end up proving very timely, despite what the carpers and those urging that we ‘must save’ it.
The news on the economy continues to worsen yesterday and there could be worse to come according to the latest monthly business confidence and conditions survey from the National Australia Bank.
Business confidence is at the lowest it has been in the survey and growth has drained from the economy as a result.
The 3% of rate cuts from the Reserve Bank since September haven’t changed confidence levels or business expectations.
Today we will find out if they’ve had any impact on consumer confidence: they should have had some impact, seeing there was a small upward blip last month.
Adding to the gloom was news that Japan’s third quarter slump was much, much greater than expected: an annual contraction of 1.8% instead of the originally reported 0.4% and worse to come as exports and investment continue to fall.
It’s against the backdrop of growing domestic and external weakness, and Monday’s rotten ANZ jobs survey figures, that the unemployment numbers tomorrow will be very closely watched.
The NAB’s survey would tend to confirm forecasts from the likes of Goldman Sachs JBWere that the Australian economy slipped into negative growth this quarter and will remain there in the first three months of 2009.
The NAB said that business conditions for the non-farm business sector as a whole fell substantially in November and there appeared to be "little, if any" real growth in the economy from May to November.
The Bank also slashed its growth forecasts for 2009 to an 0.5% rise in GDP over the year and a "recession in the non-farm economy" The bank said it expected negative growth in three of the four quarters in calendar 2008, which would be a recession, "albeit a relatively mild one".
The NAB’s head of economics, Alan Oster said large cuts to official interest rates by the Reserve Bank of Australia and the announcement of the federal government’s $10.4 billion fiscal stimulus package had provided no improvement in confidence and conditions.
"What is particularly concerning is the speed of the deterioration in recent times," Mr Oster said in the report, released on Tuesday.
"Nor does it appear that the deterioration has bottomed."
It was "the weakest actual outcome since late 1992. In seasonally adjusted terms, NAB’s Business Conditions Index fell by -6 index points to -17 points in November, compared to 7 in May and 15 in November 2007.
"This represents the largest annual fall in conditions since entering the early 1990s recession."
But the NAB expressed surprise at the outlook for the March quarter, where expectations are now below the actual November performance.
"Overall, actual conditions are poor and somewhat unexpectedly so – albeit preliminary expectations for the March quarter are now below the actual outcome for November, while confidence edged down to a record low of -30 index points, compared to -24 points in December quarter 1990.
"Based on historical relationships, overall business conditions appear consistent with annual growth in non-farm GDP below 1%.
"Put another way, businesses report that there has been little, if any, "real" growth during the past six months to November."
The NAB said the survey revealed that forward orders fell sharply for the second month in a row – down 5 points to -25 index points.
"These types of readings were last seen in the full Quarterly Survey in mid 1991" and capacity utilisation also fell sharply – down 1.3 percentage points to 80.6%, "a reading last seen in early 2002.
"The falls in business confidence were very broad based – with all sectors reporting falls but very large falls in retail, wholesale, manufacturing and finance & business services.
"The only sectors not to report falling conditions were mining and transport.
"The sharpest falls were again in interest sensitive sectors and finance, property and business services."
They also experienced the toughest conditions in obtaining credit.
The bank said "We now see Australian GDP growth slowing to only 0.5% in 2009 and 1.75% in 2010;
- For non farm GDP growth essentially stalls (0.1%) in 2009 and only 1.75% in 2010. In three quarters out of four, in 2008/09 the non farm economy is expected to decline. That is clearly a recession – albeit a relatively mild one;
- For the total economy our forecasts imply financial year growth of 1% in both 2008/09 and 2009/10;
- These forecasts include much more fiscal and monetary policy stimulus than previously forecast. Indeed the structure of the forecasts include a fall in private sector demand of around 0.5% in 2009 offset by public sector demand growth of 6% .
"As noted previously the key factors behind these lower growth forecasts are: The further deterioration in the global outlook with its negative impact on: our major trading partners growth; the continued deterioration in business and consumer confidence and asset prices (including the further 20 per cent fall in equity markets over recent months)."
"Associated with that are the further falls in commodity prices – with our forecasts now implying a peak to trough fall in Australian commodity prices of 32% (in AUD terms) and a decline of 26% in our terms of trade We have now also incorporated a moderate fall in mining investment in 2009 –
