Spike in business conditions positive sign for business lending

by Julia Corderoy13 Apr 2016
A jump in business conditions in March has seen the Australian business environment lift to its equal highest level since 2008.

Overall business conditions rose by 4 points to +12 index points in March, according to NAB’s monthly business survey. This is more than double the long-run average of +5 and its highest level since 2008. 

NAB chief economist Alan Oster said this spike included improvements in all three components: trade, profit and employment, and is an encouraging sign of the Australian economy.

“The lift in business conditions to these levels not only suggests that Australia is withstanding the uncertainty offshore, but that the recovery in the non-mining sectors of the economy have in fact stepped up a gear this month,” he said.

“It is particularly encouraging to see the employment index point towards ongoing strength in the labour market, supported by signs the recovery is broadening into previous trouble spots such as manufacturing.” 

The better business environment, and some soothing of financial market concerns, has helped to lift business confidence as well, according to the survey.

The business confidence index increased 3 points in March to +6, which is consistent with the long-run average, and an encouraging result given the overall global context. 

“The lift in business confidence suggests a lower risk of contagion from global uncertainty, but also provides some assurance that gains in conditions will be sustainable,” Oster said.

Firms’ were also reporting a fall in spare capacity in March. A fall in spare capacity points to further improvement in the underlying health of the economy and greater business spending, Oster said.

“Tighter capacity, good profitability and improving confidence levels all raise the prospects for a ramping up of business spending and employment ahead.” 

However, some of the other leading indicators from the survey – such as forward orders – were a little less encouraging.

Consequently, Oster said he expects the Reserve Bank of Australia (RBA) to keep the interest rate on hold for an extended period, unless the Aussie dollar drifts higher. If the Australian dollar continues to rise, Oster said we could be in for further cash rate cuts.