Mining leads charge as business confidence surges: NAB
Confidence rose across all states and sectors, with mining firms leading the charge, according to the National Australia Bank's monthly business survey. "Mining firms may be gaining some confidence about the minerals and resource rents tax being scrapped under a new government," NAB said.
Record-low interest rates and a falling Australian dollar also played a role in improving confidence, but they were not enough to explain the sixth-largest jump in the survey's history, NAB said.
"It is likely that expectations of political change and a decisive [election] result were very important," NAB's chief economist, Alan Oster, said.
The survey's main measure of business confidence shot up to 6, from -3 in July, the highest reading since May 2011.
The Australian dollar inched up to be trading around US92.5¢ on the data. Confidence was still weakest in the mining sector, after a jump from -24 to -3 on the survey index.
Finance, business and property were the strongest sectors, with a reading of 12.
According to the Citi Trade Finance Index, exporters have experienced a significant turnaround on sentiment.
After forecasting a 3.4 per cent fall in volumes in May, exporters are now expecting a 5.3 per cent increase in the next quarter.
This is mainly credited to the sharp fall in the Australian dollar since May.
But the surge in confidence came despite a tough trading background, with the survey's measure of business conditions improving only marginally to -6 in August, from -7 in July.
"[Businesses] were certainly changing their expectations, but they weren't changing their capital expenditure plans," Mr Oster said.
He said confidence could often be bounced around by external factors, but conditions were unlikely to change until growth in sales, employment and capital expenditure returned.
The June quarter gross domestic product numbers showed Australia was growing below trend and NAB's held its forecasts unchanged.
NAB forecast GDP growth to soften to 2.3 per cent in 2013 before gradually rising to 2.5 per cent in 2014 and 2.9 per cent in 2015.
Unemployment will exceed 6 per cent by the end of the year and peak at 6.75 per cent by end of 2014, NAB said.
The survey of more than 600 companies was taken between August 20 and September 3, when opinion polls indicated the Coalition would comfortably defeat the Labor government.
Frequently Asked Questions about this Article…
The National Australia Bank's monthly business survey showed a sharp surge in business confidence in August, with the main confidence measure jumping to 6 from -3 in July — the highest reading since May 2011 and one of the six biggest monthly increases in the survey's history.
NAB said mining firms led the charge partly because they may expect the minerals and resource rents tax to be scrapped under a new government. The mining sector's survey index rose from -24 to -3, though NAB noted mining was still the weakest sector overall.
No. Despite the confidence jump, the survey's measure of actual business conditions improved only marginally — from -7 to -6 in August — indicating trading conditions remained weak even as sentiment improved.
Record-low interest rates and a falling Australian dollar helped lift sentiment. The Australian dollar was trading around US92.5¢ on the data, and the weaker currency contributed to a strong turnaround in exporter expectations, according to the Citi Trade Finance Index.
Exporters reversed earlier expectations: after forecasting a 3.4% fall in volumes in May, they were expecting a 5.3% increase in the next quarter — a shift largely credited to the sharp fall in the Australian dollar since May.
NAB kept its GDP forecasts unchanged: growth easing to 2.3% in 2013, then gradually rising to 2.5% in 2014 and 2.9% in 2015. NAB also forecast unemployment would exceed 6% by the end of the year and peak at 6.75% by the end of 2014.
The survey covered more than 600 companies and was conducted between August 20 and September 3, a period when opinion polls suggested the Coalition would comfortably defeat the Labor government.
Based on the survey, investors should note that sentiment can be swayed by political expectations and currency moves, but conditions are unlikely to improve until sales growth, employment and capital expenditure pick up. Keep an eye on mining sector indicators, AUD movements, and actual business conditions metrics rather than sentiment alone.
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