As expected, business conditions rose in March, but confidence remains weak, according to the latest monthly survey from the National Australia Bank.
The update, out at this time every month, came as the International Monetary Fund cut its estimate for Australian and New Zealand economic growth for the rest of the year.
The IMF said it now saw Australia’s economy growing by 3% in 2011, half a percentage point lower than an October estimate.
New Zealand’s GDP will rise 0.9%, down from last month’s prediction of 1% and last year’s 3.2%, it said.
"In Australia, flooding in key mining and agricultural regions is expected to subtract from growth in early 2011, but over the year this will be offset by stronger private investment," the Fund said.
In New Zealand it said "earthquakes will slow activity this year," growth will strengthen in 2012 as reconstruction of the South Island city of Christchurch steps up.
That’s about right on what the RBA and the RBNZ believe will happen this year.
Australian inflation will rise to be around 3% by the end of the year, again on par with what the RBA believes.
The Fund sees Australia’s growth jumping to 3.5% next year and New Zealand’s growth accelerating to a strong 4.1% as the reconstruction work increases.
The National Australia Bank Business Survey for March revealed nothing that would alter that belief.
Business conditions rose 11 points to plus nine index points, moving above the zero level that separates expansion from contraction.
"The overall business conditions index is now at its highest level since March 2010," NAB said in a statement accompanying the survey.
"More broadly, confidence is now more in line with business conditions (or outcomes)," the NAB said.
"Conditions in Queensland improved significantly in the month but are still very poor."
But national business confidence declined in March but stayed in positive territory and remained above trend.
The business confidence index fell five points, to plus nine points in March.
The NAB said the Australian economy was expected to have stalled in the March quarter because of the floods and Cyclone Yasi, with coal exports still weak in February.
"NAB survey conditions improved sharply at the end of the quarter and may signal an expected recovery from mining investment, flood reconstruction and income effects of commodity prices," the survey’s report said.
The survey showed forward orders expanded in March with a rise to plus three index points, from minus four in February.
The capacity utilisation rate was up 0.4 points in March to 81.5 %.
"The survey is consistent with annualised domestic demand growth of around 2½% in the March quarter which, given the impact of recent floods on coal and commodity exports, suggests a flat to negative outcome for GDP in Q1.
"That would imply a 6-monthly annualised rate of around 1½% versus the survey read of 2¾%. Maintaining March monthly readings in Q2 it would imply a return to more than 4% growth.
"Labour costs were broadly unchanged but continue to trend down in annualised 3-month-average terms.
"While price inflation remained relatively low, purchase costs are rising," the NAB said.
NAB still expects the Reserve Bank of Australia (RBA) to next raise the cash rate to five per cent from 4.75 per cent in August, and then another quarter of a per cent hike in November.
In New Zealand the country’s Finance Minister, Bill English yesterday said that the Government will spend about $NZ8.5 billion (about $A6 billion) over the next few years to help the rebuilding of Christchurch.
He said the NZ Treasury estimates the direct cost to the Government of the two earthquakes to be about $5.5 billion, which will be fully provided for in the Budget on May 19.
"About $NZ3 billion of this relates to our share of local government infrastructure, roads, insurance excesses on schools and hospitals, temporary housing and land remediation agreed after the September quake, demolition costs in the CBD, ACC costs and the business support package," Mr English said in a speech.
"The remaining $NZ2.5 billion will cover expected costs of decisions we have yet to make – the biggest cost is likely to be remediation of land damage from the February quake."
He said that the direct cost to Earthquake Commission meeting residential property damage of the two quakes will be at least $NZ3 billion, making a total direct cost to Government of around $NZ8.5 billion."
On the other side of the ledger, Treasury has previously estimated the Government’s loss of tax revenue as a result of the earthquakes and lower economic growth could be between $NZ3 billion and $NZ5 billion over the next five years. That’s now coming back to around $NZ3 billion.
