Australian business confidence unwinds most of the Turnbull bounce: ANZ Research
Jonathan ChancellorFebruary 6, 2021
GUEST OBSERVER
Business confidence slipped in October, offsetting most of the gains made in the previous month in response to the new Prime Minister. Although it is still early days for the new government, this is a disappointing result. On the other hand, current business conditions remained at their high level, reflecting the general improvement in the non-mining economy.
After business confidence rose sharply in September, we noted the importance for both the government and the broader economy of sustaining this increase. Today’s data suggest that this is not going to be a straightforward task. However, the fall is somewhat surprising given solid increases in consumer confidence and in the government’s poll results over the same period.
That said, the fall in the NAB measure of business confidence brings it broadly back into line with the Roy Morgan business confidence series, which had been weaker previously.
It appears that Australian businesses are still sensitive to overseas conditions. Australian business confidence has tracked the softening in the global PMI which is a good proxy for global growth (Figure 2).
In more positive news, current business conditions remained elevated and are supportive of further solid growth in the non-mining economy in the near term (Figures 3 and 4).
The details were also encouraging. While profitability has eased a little, it remains at a high level and bodes well for near-term employment growth (Figure 4). Capacity utilisation continued to slowly improve, but our view is that ample spare capacity remains in the economy, limiting upward pressure on inflation, despite the risk that we see some belated pass-through from the lower AUD to tradables inflation (Figure 7).
Daniel Gradwell is economist and Justin Fabo is senior economist ANZ Research.
Jonathan Chancellor
Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.