Australian businesses ended 2018 with worrying downturn: survey

[SYDNEY] A closely-watched index of Australian business conditions weakened sharply in December as sales, profits and employment all took a turn for the worse, a disappointing end to the year that will only add to concerns for 2019.

The National Australia Bank's index of business conditions, released on Tuesday, slid 9 points to +2 in December, taking it under the long-run average of +6.

The survey's volatile measure of business confidence held at +3 in December, having been much softer than conditions in recent months.

Forward orders, its most reliable indicator of domestic demand, eased 1 point to -1 in December, while the formerly resilient reading on employment dropped 5 points to +4.

The labour market has been one of the strongest sectors of an otherwise mixed economy, with the jobless rate declining steadily to a 6-1/2-year trough of 5 percent.

Yet steep falls in home prices and a tightening of lending conditions by banks have combined with subdued wage growth and inflation to darken the outlook for the economy.

Policymakers from the Reserve Bank of Australia (RBA) hold their first meeting of the year on Feb 5 and will find it harder to justify arguments the next move in interest rates is likely to be upward.

The central bank had long touted the strength of business conditions as a reason for its optimism.

"At face value, the fall over the past 6 months suggests a significant slowing in the momentum of activity in the business sector - especially from the highs seen earlier in the year," said NAB chief economist Alan Oster.

Retail was again the worst performing sector, suggesting the Xmas shopping season did not go well as consumers remained reluctant to spend.

Mining, in contrast, reported strong conditions thanks to firm commodity prices and still solid demand from China.

The survey's measure of sales sank 8 points in December to +7, while profitability fell a matching amount to 0.

Labour costs eased in the month, while retail prices were unchanged pointing to soft inflation.

REUTERS