The Reserve Bank got confirmation yesterday from the National Australia Bank’s April business conditions and confidence report that the economy is not weak and in need of help from a rate cut. But the NAB believes otherwise and sees a rate cut emerging from today’s meeting.
The RBA rate decision will be known at 2.30pm, and while many economists think there will be a cut after the surprisingly weak inflation figures for the March quarter.
A majority of analysts however see no rate change, with the central bank waiting to see what is in the budget and decisions next month from the US Federal Reserve and the Bank of Japan, and more data.
That’s especially so after the monthly national data for house prices showed a bigger than forecast rise in April of 2.4% in the three months to April, with growth in all capital cities except Hobart, according to CoreLogic RP Data’s Hedonic Home Value Index.
The NAB said that while its April Monthly Business Survey saw both business conditions and confidence lose some of the strong gains from March, the “overall outcomes continue to point to a business environment that is highly favourable to Australian firms,”the bank’s economics team commented.
"This is helping the Australian economy withstand global uncertainties and the transition through the end of the mining boom. There are also tentative signs that the non-mining recovery is becoming more broad-based, although it is too early to determine whether this recent trends will persist,” they added.
NAB chief economist, Alan Oster said that “Even though business conditions eased this month, they have remained well above average levels for the past year, with consistently good results like these from our survey it is difficult not to have a degree of confidence in the near-term outlook”. Overall business conditions fell by 3 points to +9 index points in April, but remained well above the long-run average of +5. The trading (sales) and profitability components both eased in April, but remain quite positive, while employment held onto the gains achieved last month – suggesting ongoing resilience in the labour market, according to the NAB.
“We continue to look for signs that the recovery is broadening, and while evidence of that was a little less compelling this month, solid results for manufacturing and transport, as well as a bounce-back in retail, are all reassuring,” Mr Oster said.
And reflecting the data in the NAB survey, the May survey of manufacturing fell from the 12 year high in March, according to the Australian industry Group. The index fell to a still very solid 53.4 from 58.1.
The business confidence index eased 1 point to +5 index points in April, but this was marginally below the long-run average for the series. According to Mr Oster, “confidence remains crucial to the outlook, but this was still a reasonable outcome given the added uncertainties around the global economy and the upcoming Federal Budget and election”.
The NAB said in the release yesterday that “from these survey results, the non-mining recover appears to be on track, suggesting there is no need to fundamentally change our view of the near-term economic outlook for Australia, although this will be reviewed following (the) Federal Budget. “However, subdued inflation pressures in the Survey and a very weak CPI result for Q1 suggest the RBA has scope to further cement the non-mining recovery with an additional cut to the cash rate,”the bank said.
“Consequently, it seems more likely than not that the RBA will cut the cash rate by a further 25bp at the May policy meeting (later today), although it is likely to be a close call.
"This does not change the fact that we remain optimistic about the near-term performance of the Australian economy and labour market, especially on the east coast of Australia. However, growing headwinds expected from 2018 mean we are reviewing our rate hikes previously anticipated for 2017.
