Australia business conditions strong in May in face of rising interest rates
A MEASURE of Australian business conditions pointed to still-strong activity in May, though confidence dipped as rising interest rates and persistent cost pressures took a toll.
Tuesday’s (Jun 14) survey from National Australia Bank (NAB) showed its index of business conditions eased 3 points to +16 in May, but remained well above its long-run average.
Its measure of confidence fell back 4 points to +6, just above its long-run average.
The survey’s measure of sales dipped 3 points to a still-strong +24, while profitability fell 4 points to +17. The employment index edged up 1 point to +11, indicating the jobless rate could drop further under 4 per cent and to lows last seen in the 1970s.
“Overall, the survey indicates the economy has maintained its momentum into Q2 and most businesses are in a strong position despite the inflation headwinds, with the lift-off in interest rates and global growth risks yet to significantly impact Australia’s economic trajectory,” said NAB chief economist Alan Oster.
Input cost growth eased from record highs in April, with labour costs rising 2.5 per cent and purchase cost growth at 3.8 per cent in quarterly terms. Final product prices rose 1.8 per cent and retail price growth jumped to 3.1 per cent in quarterly terms.
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“There was a slight easing in cost growth in May but inflation remains a key challenge,” said Oster.
A surge in inflation has led the Reserve Bank of Australia (RBA) to hike twice since early May, lifting rates by 75 basis points to 0.85 per cent, and to flag more ahead.
Markets are wagering in another 50 basis points in July and rates as high as 3.5 per cent by year end.
That aggressive outlook has hammered consumer sentiment, though actual spending had been relatively resilient up to now due in part to A$260 billion (S$251.3 billion) in extra savings stashed away during pandemic lockdowns.
A survey of household spending intentions from Commonwealth Bank of Australia (CBA) released on Tuesday showed a lift in May due to strength in home-buying, health & fitness and transport, but also falls in entertainment, travel and insurance.
“The RBA interest rate hiking cycle has started and is now expected to be more aggressive than earlier anticipated,” said Belinda Allen, a senior economist at CBA.
“We have already seen early indicators of softness in CBA credit and debit card spending data. We have revised higher our terminal cash rate forecast to 2.1 per cent and downgraded our economic growth outlook and dwelling price forecasts.” REUTERS
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