Rate cut in line for November

by Mackenzie McCarty14 Aug 2013

Business conditions hovered at four-year lows in July as confidence slumped to an eight-month dip, according to NAB’s Monthly Business Survey, July 2013 – and business credit continues to be a significant area of contention.

A falling Australian dollar and the ‘lure of lower interest rates’ proved unable to improve business confidence levels, which reached their lowest point since November, 2012. The major lender says it’s likely the weakness in business activity and profitability is the key driver of weaker confidence – thought it’s also possible that uncertainty over the timing the Federal election kept businesses wary during the month, as the survey was conducted prior to the election being called.

As a result of the findings, NAB predicts another rate cut as early as November and says ‘more cuts may follow’.

“We remain a touch more bearish than recently revised forecasts from the government and the RBA.”

Borrowing conditions tightened moderately in July, suggesting that finance became more difficult for businesses to access in the month.

The net borrowing index (easier minus harder) fell from -3 to -5 points in July, which NAB says reflected a slight increase in the proportion of firms finding borrowing more difficult, which was compounded by a fall in the proportion of firms finding borrowing easier. Overall, around one third of firms required borrowing in the month.

Overall, the survey implies underlying demand growth and GDP (6-monthly annualised) of around 2.5% in the June and September quarters. Our wholesale leading indicator implies little

Trend business confidence weakened marginally in Queensland, NSW and WA – the three largest mining states – while it was unchanged in Victoria and SA. The overall level of trend confidence was broadly similar across the states, ranging from -5 in Victoria to zero in Queensland.