An upbeat December business survey from the National Australia Bank yesterday says the economy is well placed to perhaps grow a little faster in 2022, despite the new omicron variant of Covid.
While business conditions improved as the lockdowns faded in NSW and Victoria, confidence eased, though remained still well above long erm averages, the bank’s economists said in the survey.
“Overall, these results indicate a strong recovery is underway,” according to NAB chief economist, Alan Oster.
“Notwithstanding the possibility of new disruptions related to the Omicron variant, the economy is well placed to carry this momentum forward over coming months and into 2022.”
Conditions rose 2 points to +12 index points in November, remaining above the long-run average after rebounding in October.
The NAB said the improvement in conditions was driven by employment, which rose 5 points to +11 index points. Trading conditions (up 1pt) and profitability (unchanged) were largely steady.
“Conditions continued to rise in November, although the post-lockdown bounce was less pronounced this month,” said Mr Oster.
“Much of the improvement came in Queensland and South Australia, with conditions in Victoria only lifting gradually and NSW largely steady.”
“Conditions improved noticeably in the retail and transport sectors, which were heavily impacted by the lockdowns, but deteriorated in construction,” said Mr Oster.
“There is still scope for things to improve further in coming months, particularly in recreation & personal services which was still in negative territory in November despite many restrictions easing in the month.”
Business confidence eased to +12 index points in November, down from +20 in October but still well above the long-run average.
Confidence eased considerably in NSW, Vic, and SA after highs in October, but rebounded in Tasmania (after a sharp October fall there). In trend terms, confidence is strongest in NSW and Vic.
Capacity utilisation continued its recovery, reaching 83.2% in November. Forward orders remained elevated (down just 1pt to a very high +14) and capex also strengthened (up 5pts).
“Confidence remains high across states and industries, albeit it has come back to earth a little after the optimism associated with the end of lockdowns,” said Mr Oster.
“Forward indicators are also very strong with a rise in capital expenditure a welcome sign that businesses are beginning to look towards a period of expansion.
“These results align with the strong rebound in activity that we believe is now underway, as well as a positive outlook for the coming months with vaccination rates now very high.
Inflation remains a worry for many companies with indicators at elevated levels.
Labour costs growth continued to rise in November (partly reflecting strong employment gains) while purchase costs growth eased from record rates in the prior month. Both overall output price and retail inflation strengthened with both now well above 1% in quarterly terms, the nAB pointed out.
“With employment rising rapidly, businesses’ total wage bills have naturally increased,” said Mr Oster.
“As the employment recovery continues and the labour market tightens further, these gains should eventually translate into growth in underlying wages, but how quickly that occurs remains to be seen.” Mr Oster said in Tuesday’s release.
