The National Australia Bank hopes that once the current Covid lockdowns end the economy will rebound strongly from the squeeze on activity.
The bank’s July business survey has (predictably) revealed a sharp slide in confidence and conditions, thanks to the spate of lockdowns, led by the biggest of all in greater Sydney.
But NAB hopes that once the restrictions are lifted the very strong momentum in the lead-up to the recent lockdowns will see the economy rebound relatively quickly, “consistent with the experience through the pandemic to date, and resume a strong growth trajectory – and a return to strong capex and employment plans,” as the bank put it yesterday.
But there will be some pain before that happens according to the bank’s chief economist, Alan Oster.
“It is now widely expected that we will see a negative print for GDP in Q3, He said in commentary with Tuesday’s survey results.
“However, we know that once restrictions are removed that the economy has tended to rebound relatively quickly.
“We will continue to track the survey very closely for an indication of just how quickly that happens – particularly forward orders and capacity utilisation as we assess how the disruption has fed into expansion plans as conditions bounce back” said Mr Oster.
“The hope is that the economy again rebounds strongly, and we see little pullback in the very positive investment and hiring intentions we have seen by business in recent months” Mr Oster added.
The survey showed that both conditions and confidence deteriorated sharply last month with the latter now back in negative territory.
“Unsurprisingly, due to its size and the severity of the lockdown in the state, NSW drove much of the result this month,’ the NAB pointed out.
“Both confidence and conditions fell sharply following a full month of lockdown in the state.
But it wasn’t just Sydney – we know July saw lockdowns in South Australia and Victoria as well and the NAB said conditions fell in all mainland states, with South Australia in particular also seeing a very large fall.
“Conditions softened in all industries, with the exception of mining – where it remains elevated,” the NAB said.
Conditions fell 14 points in July, with trading conditions and profitability sharply lower. In addition, the survey’s employment index also saw a solid fall.
Business confidence saw a very sharp decline in the month, down 19 index points to minus 8.
“The decline in confidence was evident across states and industries. All industries except for mining and construction are back in negative territory. By state, NSW is now weakest and well into negative territory while all other states are still positive with the exception of Queensland,” Mr Oster said.
“The forward-looking indicators also softened and, with forward orders now back in negative territory and capacity utilisation now back around average, suggest little improvement in conditions in the near term.
Overall, the NAB said its “survey shows that the strength in the business sector seen in early-to-mid 2021 has faded on the back of fresh disruptions in the economy but it has not yet deteriorated to the lows seen in early 2020.”
