The National Australia Bank has nudged up its growth forecasts for the Australian economy for this year and 2010, and trimmed its expected unemployment peak after what it called another strong month for business confidence and conditions.
The bank reported today that its monthly business survey had revealed that confidence rose 3 to +19 points in November, and while business conditions eased, most of the gains in October had been retained.
The monthly survey of over 400 firms from the NAB showed its measure of business hit the highest since May 2002.
That improvement came even though the Reserve Bank of Australia raised interest rates for a second time early in the month and justifies the central bank’s confidence in the economy.
The NAB’s survey results confirm what appeared in the October survey, that the rebound in the economy was widening and not solely driven by stimulus spending from Canberra and low interest rates (although both still had big influences).
In fact there’s no sign of the rate rises in October and November having an impact, despite claims from some sectors that that would happen.
The survey results also came a day after the ANZ job ads report showed a strong rise last month, confirming the feeling that the jobs market is starting to grow, even if it is mainly in part time work.
The NAB survey is watched by the Reserve Bank, especially its comments on capacity utilisation and demand.
With Governor, Glenn Stevens, the key speaker at last night’s Australian Business Economists forecasting dinner in Sydney, the NAB report will buttress those who expect more rate rises early in 2010, as the NAB does because of the underlying strength of the recovery.
"The continuous climb in confidence is remarkable with the level of confidence now the highest since May 2002," the NAB said yesterday in commentary with the survey.
"In November, confidence improved significantly in mining, retail (in part car related reflecting government stimulus measures) and transport. But weakened in construction (from very high levels) and wholesaling," the bank said.
While business conditions fell 2 points to +10 (following the 9 point jump last month), the NAB said trading conditions were unchanged at +15 points while profits were down 2 to +11 points, and employment fell 5 to a still positive reading of +2 (only the second positive since mid 2008).
"Business conditions were quite mixed with large falls in mining, manufacturing, transport finance and personal and recreational services. Construction activity was broadly unchanged but retail and (especially) wholesale conditions strengthened markedly," the NAB said.
As a result of the "continuing strength of the Survey – especially for business conditions", the NAB lifted its growth forecasts for 2009 and 2010.
"While the public sector looks to be making a large contribution to growth in Q3 it is also clear that business is stepping up capacity utilisation and production in the face of ongoing strength in demand. Also the phase of de-stocking and labour shedding has passed.
"The Survey very much points to these processes continuing into Q4 – and new strength in the retail sector. With high levels of confidence, activity and forward orders we now expect GDP to increase by around 0.5% in Q4 (on the back of our current forecast of 0.9% in Q3)
"That means GDP in 2009 is now expected to be around +1.25% (+1% previously). For 2010 we still see accelerating growth during the year (that is from Dec 2009 to Dec 2010) of nearly 3%.
"However given the higher base that raises the year average 2010 forecast to 2.75% (2.5% previously) and the 2009/2010 financial year forecasts to 2.25% (1.75% previously).
"These changes also flow into the labour market forecasts with the unemployment peak now put at 6.2% in mid 2010 (6.5% previously)."
The NAB said core inflation forecasts "are broadly unchanged at 2% at end 2010 (a touch lower than the RBA’s). The continued high currency is an important factor in keeping the inflation outcome at the bottom end of the RBA target."
And on interest rates, the bank said it saw the RBA increasing rates in each of its next two meetings in February and March.
"The stronger economy could have raised the risk of RBA doing more, but, on the other hand the action of some banks in increasing rates by more than the RBA has partially offset that risk.
"The possibility that the RBA only moves once in early 2010 probably now depends on banks doing more again.
"Against that, much depends on inflation remaining contained and the economy not accelerating even faster than expected.
"Thereafter, we continue to expect the RBA to pause for around 6 months before delivering progressive 50 point (2 by 25 point) rises until rates are back to near neutral.
"This would see rates at 4.75% by late 2010 and 5.5% by late 2011."
The RBA lifted rates again to 3.75% for a third time in as many months at last week’s last board meeting for the year.
The outlook is for more of the same in the first quarter of the New Year.
