According to the National Australia Bank, it’s clear that "the RBA’s full attention now is on attempting to avoid a very hard landing in 2009 and into 2010".
In a commentary in its latest monthly business confidence survey, the bank said that "With more evidence of deteriorating confidence, forward orders and investment intentions together with a sharp deterioration in retail spending emerging, – and in our survey labour shedding – we see no reason for the RBA to do other than continuing to rapidly lower rates".
Accordingly the NAB sees the economic slowdown in Australia lasting longer than even the federal government or the Reserve Bank have forecast, with unemployment rising further, but interest rates will drop under 4% next year.
A day after the Reserve Bank cut its growth estimates for 2008 and 2009 and warned unemployment would rise, the National Australia Bank’s latest monthly survey, released yesterday, says business confidence has hit a record low and that the outlook for the economy is worse than the official forecasts.
The news came as leading retailer Harvey Norman, in another update of its sales performance, revealed that written same store sales in the four weeks ending Sunday, November 9 fell 2.8%, after improving in the four weeks to November 2 to be down just 0.6%.
The worsening in the retailers’ sales performance came despite the big 0.75% cut in interest rates last week by the RBA.
The NAB’s new forecasts, which are gloomier for the local economy than either the RBA or Federal Treasury, sees economic growth of 1.25% for calendar 2009, 2% for calendar 2010 and 1.5% for the 2009 and 2010 financial years.
NAB said its 2009 forecast for 2009 "of only 1¼ per cent clearly points to some unexpected and difficult times ahead.
"That is highlighted by noting that excluding mining and agriculture, our forecasts imply that the rest of the economy will slow to growth rates of less than ½ per cent over the next year or so."
"That is driven by lower equity markets, reduced commodity prices, lower global growth and a more bearish housing market outlook in 2010 as unemployment peaks," the bank said yesterday."
It’s head of economics, Alan Oster said:
"Fear reigns supreme. Continuing volatility in global equity markets, emergency financial packages, falling commodity prices and continuing talk of global recession have finally broken business optimism.” .
"On the labour market, we still see unemployment at around 6% by late 2009 rising to around 6½% in mid 2010. These forecasts are more bearish than recent government forecasts. They also imply Budget deficits of around $10bn in 2010," the bank said.
Not helping is the collapse in business confidence and slumping trading conditions.
The NAB said that business confidence crumbled to record low level with "business conditions also sharply down – but still at 2001 levels which are not recessionary".
The bank said business confidence "fell (a record) 21 points to a new record low of -29 index points; business conditions also fell sharply – down 10 points to -11 index points – a level around the bottom of the slowdown in late 2000/early 2001 (-13 points).
"Trading conditions fell 11 points to an index reading of -10. Profitability fell 9 points to -13 index points and employment fell a relatively sharp 8 points to -10 index points.
“The latter is now indicative of labour shedding occurring and is more bearish than the official ABS employment estimates. All three sub components are at levels last seen in the 2001 slowdown.
"Forward orders also fell rapidly – down 10 points to a Monthly Survey low of -20 index points. These type of readings were last seen in the full Quarterly Survey in mid 1991.
"The falls in business confidence were very broad based – but with particularly large falls in construction, retail, wholesale and transport. The falls in business conditions, while sharp were cushioned by sharply higher mining and moderate gains in wholesaling
"The new measure of credit availability saw 25% of respondents report tightening in credit availability – with the greatest credit difficulties being reported by finance, property & business services.
“Next month around 35% of respondents expect tighter credit."
"Wages growth a touch lower, but inflation still high & rising – on the back of higher purchase costs," the NAB said.
The NAB said it still had Australian economic growth rising at a sluggish 1.25% in 2009, or 1.5% in each of the next two financial years – significantly lower than government forecasts.
This in turn implies "weaker labour market and budget outcomes. Risks to growth still on the downside and RBA now expected to cut further and more quickly – with our cash rate forecasts lowered to 3.75% in early 2009 (previously 4.5% by mid 2009)," the bank said.
The NAB’s concerns about housing were underlined by Australian Bureau of Statistics figures on Monday on housing finance which showed a seasonally adjusted 1.6% drop in September. That was down a massive 29.4% in 2008 so far.
That’s the worst for seven years. It was the eighth monthly fall in a row and the lowest level of commitments for home loans since February 2001.
