Reports on the economies of China and Australia yesterday give us an opportunity to make a couple of points about the current health of both.
For Australia, there’s no real change with weak readings in the latest the monthly survey of business conditions and confidence from the National Australia Bank.
Taken before the rate rise a week ago, it was’t good news as the gloom that has gripped business for the past four months continued into this month. More on that later.
For China, our biggest export market, the news was again gloomy after Sunday’s trade report for January showed imports down 19.9%, exports down, 3.3% and a record trade surplus of $US60 billion.
Now the latest figures on inflation show a very worrying slowing in the rate of growth in prices with consumer inflation sliding to a five year low.
Chinese consumer inflation has slowed sharply, last month while the deflation gripping the country’s manufacturing and other producing sectors deepened noticeably last month.
The CPI rose just 0.8% year-on-year in January, against forecasts of a 1% rise and the 1.5% rise in December.
The rate is less than a quarter of the annual official target of 3.5% and underlines the impact of the slide in oil and petrol prices, but also the way the continuing fall in producer prices is starting to seep into the wider economy as manufacturers and retailers slash the prices of their products to keep them moving.
China inflation hits five-year low
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Producer prices meantime dropped for a 35th consecutive month in January, thanks falling energy and commodity prices (iron ore, copper, grains) again crushed price pressures.
But like the CPI, producer prices fell by more than expected – down a whopping 4.3%, year on year last month, against the 3.3% drop in December.
The report means China is closer to retail price deflation – and possibly another interest rate cut to add to the cut on November 21 and last week’s cuts in the reserve requirements for banks, which will make more than $US100 billion available for lending – if there is demand for the funds.
Chinese producer prices also tumble
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In Australia business confidence sagged and while conditions grew by a fraction, the rise as revealed in the NAB survey, was meaningless.
The monthly business conditions index, which looks at current conditions rather than the outlook, fell to a reading of 2.
This kept it at its three month low of 2, as December’s previous reading of 4 was also revised down to 2. The NAB business confidence index meanwhile grew by one point to 3 in January, which is well below trend.
"The trend in business conditions has lost momentum," NAB chief economist Alan Oster said in a statement with yesterday’s report.
"Conditions have fallen for three consecutive months, with the index dropping another half a point in January (unchanged when rounded) to 2 index points – below the long-run monthly survey average of 4 points."
NAB said business confidence remained close to its lowest level since just before the 2013 federal election, when it was obvious the Coalition would win government.
"Business confidence edged up in the month despite very few signs of improvement in the economy," said Mr Oster.
"Nevertheless, the trend in confidence is clearly down and sits at relatively soft levels."
NAB found that although conditions slipped modestly, there were noticeable falls in capacity utilisation, which points to continued softness in the labour market.
The report matches the tone of Reserve Bank commentary on the economy last week.
