Australia’s business confidence slipped into negative territory and conditions slumped in May in a result that augers poorly for the nation’s already weakening economy amid rising interest rates.
(Bloomberg) — Australia’s business confidence slipped into negative territory and conditions slumped in May in a result that augers poorly for the nation’s already weakening economy amid rising interest rates.
Business confidence fell 4 points to minus 4 in May, a National Australia Bank Ltd. survey showed Tuesday. Conditions — measuring hiring, sales and profits — slid 7 points to 8, reflecting declines across all three segments.
The report suggests businesses are turning gloomier as the Reserve Bank keeps tightening policy, lifting the cash rate to a level last seen in April 2012. The RBA has warned that further rate rises “may be required” in its effort to tame persistent inflation.
The resilience of the corporate sector to rising borrowing costs coupled with solid employment growth have been key reasons for the RBA’s confidence in its ability to engineer a soft landing during the tightening cycle. Tuesday’s data show the business outlook is beginning to converge with downbeat consumers in a worrying turn for the A$2.3 trillion ($1.6 trillion) economy.
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“Our bigger worry is the sharp decline in forward orders,” said Alan Oster, NAB’s chief economist, adding that the measure typically leads business conditions and has historically been the best gauge of economic activity.
“If orders persist at these levels we could well see ongoing sharp falls in business conditions, highlighting the risks around economic growth through the middle of this year,” he said.
Forward orders fell to minus 5 points from 1 in April. Trading conditions plunged 8 points to 14, profitability dived 5 points to 7, while employment slumped 7 points to 4. The survey also showed that both input and output price growth rose in May, in another sign of ongoing inflation pressures.
“With the easing in business conditions accelerating and forward orders falling sharply, there is a growing risk that the RBA’s attempts to maintain an even keel ‘run aground’,” Oster said.
The RBA has raised rates by 4 percentage points since May 2022 to 4.1% as it grapples with sticky inflation. A Bloomberg survey of economists last week showed the risk of a recession jumped to the highest level since the pandemic.
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