Australia’s business conditions eased and confidence remained subdued, pointing to softer economic growth as tight monetary policy takes its toll, while consumers reported a more upbeat outlook on expectations interest rate hikes have ended.
Business conditions, which measure sales, employment and profitability, slid 2 points to 6 last month, below their long-run average, a National Australia Bank Ltd (NAB) survey showed yesterday. Business confidence edged up to 1 point from zero.
“Rates will remain high for much of the year and price pressures are still a concern against a raft of global uncertainty,” NAB chief economist Alan Oster said. “We will keep a close watch on how confidence evolves through early 2024 as price pressures ease further and the focus on the easing phase of the rates cycle grows.”
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A separate household survey from Westpac Banking Corp released an hour earlier showed consumer sentiment jumped 6.2 percent to 86 points, spurred by the view that the Reserve Bank of Australia’s (RBA) rate-hike campaign is over, as well as tax cuts ahead.
Still, pessimists continued to outweigh optimists with a reading of 100 the dividing line. The index of consumer confidence has held below 100 since February 2022.
“While sentiment is still firmly pessimistic there finally looks to be some light at the end of the tunnel,” Westpac senior economist Matthew Hassan said.
“Moderating inflation and shifting expectations for interest rates appear to be the main factors behind the lift with some additional support coming from the prospect of broader income tax cuts,” Hassan added.
The weakening of the corporate outlook and improvement in household sentiment represents a reversal of past trends where consumer sentiment tumbled in response to rate rises while business showed greater resilience.
The RBA has raised rates by 4.25 percentage points since May 2022, its most aggressive tightening cycle in a generation in a bid to rein in inflation. The hikes hammered consumer confidence as Australians hunkered down in the face of rising mortgage repayments.
The central bank has kept borrowing costs at a 12-year-high of 4.35 percent since a surprise hike in November last year.
Most economists now believe that the bank is done hiking — and that the next rate move is down.
“Price pressures remain solid despite the ongoing easing in activity measures,” Oster said. “However, they typically lag activity in the economy and we expect an ongoing easing in price pressures across the economy in early 2024.”
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