Despite the recovery in confidence and conditions, the NAB reckons first quarter economic growth will suffer as a result of the impact of the floods on demand.
The bank said the March quarter would ‘‘stall’’ due to the floods that hit Queensland in early January.
The bank says its survey results imply annualised domestic demand slowing to 2% in the six months to March.
NAB said the current soft underlying inflation and economic conditions had caused the bank to reassess its forecast for movements in the cash rate.
The bank predicted the Reserve Bank will lift the cash rate from 4.75% to 5% in August, instead of May as predicted earlier.
"Given ongoing softness in underlying inflation and the economy our rate rises have been delayed – from May to August (to 5%) with the final adjustment to 5¼% in November," the bank forecast.
(Westpac is looking for a rate in September.)
"The risk of an earlier or larger rate adjustment lies with faster growth and especially any sign of wage pressures from tighter labour markets or higher flood related prices," the bank said yesterday.
"The average reading on forward orders for January and February suggests that demand growth may have declined further (to 2.75%) in the March quarter.
"Thus, there is the likelihood that annualised demand growth remains below 2% at the start of 2011.
"Based on historical relationships, the business conditions index implies that non-farm GDP grew at a 6-monthly annualised rate of 3.25% in the December quarter, a good deal faster than the actual outcome of 1.1%.
"The average of the January and February business conditions prints yields a prediction that non-farm GDP growth rate slowed sharply to around 1½% in the March quarter, pointing to an ongoing subdued annualised rate of non-farm GDP growth.
"Mining investment boost and infrastructure repair to become significant, along with income effects of past terms of trade gains, as 2011 unfolds. Forecasts broadly unchanged at 2.5% in 2011 (was 2.4%) and 3.7% in 2012 (was 3.9%).
"The unemployment rate to decline to 4.5% by 2012.
"Labour costs (a wages bill concept) eased again in February in terms of the three-month average rates in the chart.
"Over the past year, the strongest labour costs increases have been in mining and the weakest have been in retail, wholesale and construction.
"Price inflation edged up again in February for product prices, but retail price inflation remained at very low levels," the NAB said.
The NAB said it saw the Australian dollar peaking around $US1.05.
