Australia business conditions brighten despite political fog: survey

[SYDNEY] Australian firms reported a marked pick-up in business conditions and employment in June, a surprisingly strong sign the economy is keeping an even keel in the face of heightened political uncertainty at home and abroad.

National Australia Bank's monthly survey of more than 500 firms showed its index of business conditions added 2 points to stand at +12 in June, well above the long-run average and around the highest since the global financial crisis.

Its business confidence index bounced 3 points to +6, more than reversing a dip in May.

Measures of sales and profitability remained strong while there was a notable improvement in hiring. The employment index climbed to +4 compared with a long run average of +1.2.

The survey was taken amid the height of uncertainty over Britain's vote on leaving the European Union and ahead of a July general election in Australia that was expected to be a close call. After more than a week of vote counting, the conservative government of Malcolm Turnbull is set to stay in power.

"Despite this, firms in the survey continued to report very high business conditions, pointing to another strong quarter for the non-mining economy," said NAB chief economist Alan Oster.

"Employment conditions are now back above long-run average levels, suggesting solid near-term employment growth."

Mr Oster said the resilience of business conditions should reassure the Reserve Bank of Australia (RBA) that the economy continue to expand. Economic growth beat forecasts in the first quarter to reach an annual pace of 3.1 per cent.

The RBA kept interest rates steady at a record low 1.75 per cent this month, but many analysts are wagering it will cut in August should inflation remain uncomfortably low.

"The view on inflation is arguably more important at this juncture, and the survey is not suggesting any meaningful turnaround in near-term inflation pressures," noted Mr Oster.

Indeed, the survey's measure of retail prices fell 0.2 per cent over the three months to June, indicative of fierce competition in the sector.

Businesses also upgraded their investment plans, with the measure of capital expenditure rising to a healthy +9 in June.

REUTERS