The Reserve Bank and the National Australia Bank both agree on something about the economy – that it’s flat, business confidence is weak and conditions are weak as well, and drifting aimlessly.
Both would also agree (although it’s unstated) that it is not the best of backgrounds for a Federal budget that is expected to be heavy on politically targeted spending and light on significant reform or change in policies aimed at stimulating demand.
There have been so many leaks, of so many policies, that it is hard to think of what else could be in the budget – except the nasties, or the sneaky (such as getting a bigger than expected dividend from the Reserve Bank).
But it is clear the business/economic background to the budget (as contained in the Number 2 Statement) will make glum reading.
The big question is whether the budget and the commentary from the government can boost business and consumer confidence to levels where they want to start spending in a sustained fashion (outside housing and cars).
The Reserve Bank’s outlook was outlined in its second Statement of Monetary Policy for the year, released last Friday when the central bank said:
"Growth in the Australian economy is expected to continue at a below-average pace for a little longer than earlier anticipated and to pick up gradually to an above-average pace over 2016/17." That is, after the next federal election.
In the meantime growth in 2015-16 was cut by a quarter of a per cent to a range of 2.5% to 3.5% – it was the second 0.25% trim in a row from the RBA.
That means the economy won’t deviate much in the next year, according to the best estimate from the RBA.
Yesterday the National Australia Bank’s April business survey provided a similar reading of the economy to that from the RBA.
”Business confidence was unchanged in April, at relatively subdued levels,” the NAB reported in its monthly survey yesterday.
“Until confidence lifts significantly it is difficult to see a sustained economic recovery developing – to date rate cuts have not appeared to do much and it will be interesting to what if anything this week’s Federal Budget will do.
“Interestingly, falls in confidence were confined to a small number of industries (professional services and construction).
“While less negative than in the past, confidence in mining remain the weakest along with finance/ property/ business.
"Business conditions retraced some – but not all of the gains reported in March. In trend terms, the recent upward trajectory of conditions remains intact and is broadly at levels consistent with average rates of activity over the history of the survey” the NAB reported.
“All components of business conditions (trading, profitability and employment) weakened in April, with employment dipping back into negative territory.
“Changes in conditions varied considerably across industries in the month, with the recovery in the ‘bellwether’ wholesale industry proving short-lived.
"Construction also deteriorated, but remained positive, while mining was less negative in the month.
“Both the exports and orders index remain soft, while capacity utilisation and capex each eased back.
"Consumers are still cautious. The biggest concern remains the weak intentions towards business investment,“ the NAB said.
It won’t get any disagreement there from the RBA.
