Tuesday, 12 February 2008

Australian Business Confidence Lowest Since 9/11

Global turmoil in financial markets and areduced outlook for global economic growth has started to weigh on Australian Business confidence as measured by the NAB Monthly Business Survey. From the smh.

Business confidence falls to lowest level since 2001

Companies are increasingly worried about a deterioration in global financial markets with business confidence falling to its lowest level since 2001, a survey says.

Business investment is tipped to fall in coming months after confidence levels recorded the biggest slide in a decade.

The National Australia Bank (NAB) monthly business survey found that business confidence had fallen by nine points in January to minus four, which was its worst reading since the September 11, 2001 terrorist attacks in the US.Confidence also had experienced its biggest six-month fall in a decade.

The survey said recent equity market slides and the Reserve Bank of Australia's (RBA) decision last week to raise interest rates by a quarter of a percentage point, to seven per cent, also had hampered confidence.

"That confidence fell sharply in an environment of large falls in equity markets, emergency rate cuts in the USA, much talk of the potential US and even global recession, increases in mortgage rates outside RBA adjustments and strong expectations, subsequently confirmed, of an RBA rate rise, is not surprising," the survey said.

"Clearly, the sustained global financial turbulence and tighter domestic financial conditions have had a marked negative impact. "If this proves to be sustained, we would expect to see downward adjustment in actual conditions and notably capital expenditure plans during the next few months or so."

The survey also showed that business conditions in the first month of 2008 had slipped four points to 13 while profitability had fallen by six points to 13.

"Conditions remain reasonable but ease significantly and reinforce the view that the peak in demand passed in the latter part of 2007," the survey said.

That's quite a sharp in business confidence. It will interesting to see if that translates into slower business investment in the next few months. As noted in RBA Signals More Rate Rises To Come, the RBA runs the risk of being too restrictive on monetary policy if global growth slows faster than they anticipate. Some economists are forecasting that the RBA will be cutting interest rates next year.

NAB chief economist Alan Oster said the RBA would begin easing rates in 2009, with the official cash rate tipped to fall to six per cent next year.

"Indeed the RBA's more hawkish near-term view only reinforces this expectation," he said."Given our forecasts, that would be consistent with bringing monetary policy settings back to a more neutral, but still firm, policy stance by late 2009, early 2010."

The NAB forecast that the Australian economy would grow by three per cent in 2008, compared with global expansion of 3.75 per cent and US growth of 1.25 per cent.

Again, if global growth moderates faster than expected those interest rate cuts could come by the end of this year. The US Federal Reserve's inflation fear were overblown and they ended cutting the fed funds rate aggressively. The RBA could find itself in a similar position in 9-12 months time.


Glen said...

It all looks pretty gruesome.

I have been thinking of buying bonds late this year/ early next and looking for a 6-12 month trade.

The RBA seems hell bent on forcing a recession. And I don't think you can do that without cocking it up completely and screwing with otherwise strong sectors.

The Fundamental Analyst said...


The RBA is reacting to the current data which all points to a strong economy and rising inflation. However that can all change pretty quickly if businesses start cutting back on their capital expenditure and consumers start to be more conservative.