As the Federal government starts announcing its COVID 19 fighting plans and stimulus, the latest report on the health of the Australian economy shows it is in dire need of help.
The NAB’s monthly business report is the longest and best-regarded of the various surveys and February’s edition on Tuesday showed that both conditions and confidence fell last month.
The NAB said conditions fell 2points to a reading of zero-index points – led by a decline in profitability and small decline in trading conditions. The employment index edged higher in the month.
Confidence is now firmly negative at -4 index points implying that businesses see further deterioration in conditions in much of the economy in coming months.
“Even so confidence is now firmly negative and business conditions appears to have renewed its previous downward trend – with both series well below long-run averages,” the NAB said in a commentary on the survey.
“More importantly, forward orders deteriorated significantly and is quite negative. While the deterioration in the survey is not as large as we had feared, the notable decline in recreation & personal confidence over the past two months, a decline in exports and the overall softening in forward orders (in part reflecting in weaker confidence) are all areas that would have been expected to show a virus impact.
“More broadly, the survey continues to suggest ongoing softness in the business sector with conditions and confidence having tracked below average for some time and capacity utilisation hovering around average in recent months.
“This has been reflected in reported capex falling to a below average level after trending lower over the past 18 months or so.
“The employment index ticked up in the month and is back around its long-run average despite the ongoing weakness in confidence, trading conditions and profitability.
“However, while it remains a bright spot in the survey it too has moderated, and implies a significantly slower pace of growth in employment when compared with 2018 and early 2019, the NAB added.
According to Alan Oster, NAB Group Chief Economist “Both conditions and confidence fell in the month, but not by as much as we had feared. That said, both continue to track below average and with forward orders weakening it’s likely we could see further deterioration”.
“The eastern mainland states remain clustered around 1-3 index points in trend terms with WA lagging. Tasmania remains the standout – with conditions notably above the other states” said Mr. Oster.
“Our special question this month suggests around 50% of firms have been unaffected to date, and the bulk of those that have been reported only a minor impact.
“However, it is very possible this number will rise as the spread of the virus continues – this would most likely result in a further deterioration in confidence and eventually reported business conditions,” said Mr. Oster.
