Business conditions remain weak in Australia as confidence posts marginal improvement in January

NAB business confidence report highlighted the business conditions in Australia to have remained weak on Tuesday. The report suggested minor improvement in confidence as compared to its previously recorded worst reading since 2013.

The business conditions index of the National Australia’s Bank (NAB) was revealed at +3 in January that fell significantly shy of the long-run average that’s currently at +6. The survey’s component of business confidence that is known for its volatility printed a gain of one point and posted -1 in January. On the sales and profitability fronts, however, weakness continued to prevail.

Jobs Growth Remained Slower In Australia Last Month

The sub-index of employment, on the other hand, saw 3 points decline to register a reading of +1 in January. The sub-index suggested slower growth in jobs in Australia last month.

Chief Economist Alan Oster of NAB Group commented on the survey results and stated that the implications of the data are largely similar to what was hinted towards the end of 2019. While further deterioration, he added, wasn’t evident in Tuesday’s data, the survey failed to stir optimism regarding any viable growth in Australia’s private sector.

Bushfires in Australia kept tourism and spending weighed towards the end of last year; a period that is known to celebrate on both fronts due to the holiday season. The downbeat effect of the bushfires was more prominent in populous states like Victoria and New South Wales that contributed the most to keeping the NAB business conditions index under pressure in January.

NAB also announced on Tuesday that results of a dedicated survey that provide insight into the broader impact of bushfire will be released in the upcoming weeks. According to Oster:

“Looking forward, businesses themselves do no anticipate a material improvement with forward orders still weak (and negative) and capacity utilization having fluctuated around its average in recent months.”

Unemployment Could Surge Higher If Business Activity Remains Low

If business activity remains lower, Oster added, the long-term effect could be dire on the unemployment situation in Australia.

The Reserve Bank of Australia (RBA) opted for three rate cuts in 2019 to 0.75% directed at fueling growth and inflation. The move helped the central bank improve home prices while pushing the unemployment rate down to 5.1%.

RBA, however, kept the monetary policy unchanged in its first meeting of 2020 in January and also hinted at the “no change” strategy to be applicable in the upcoming months as well.