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A dramatic rise in business confidence suggests Australia’s economy is tracking in the right direction
With the worst of the global financial crisis all but behind us (if you believe the optimists), Australia’s economy has continued to outperform those of other developed countries, recording the fastest growth, the second-lowest unemployment rate and the lowest debt and deficit.
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Business confidence is also up. According to the latest figures from NAB’s monthly business survey and economic outlook, confidence climbed eight points in August, its highest level since October 2003.
This healthy rise may mean the Reserve Bank of Australia (RBA) will not keep the official cash rate at emergency lows for much longer.
The RBA is already making noises that a rate rise may be near. In its most recent statement on monetary policy, it indicated that economic conditions in Australia were stronger than expected and that “overall credit growth remained quite modest”. The RBA also said it would raise rates in the near future in order to “foster sustainable growth in economic activity and inflation”.
NAB chief economist Alan Oster predicts the official cash rate will stay on hold at 3 per cent for another month or so before edging towards pre-crisis levels.
NAB predicts that the RBA’s most likely action will be to announce three consecutive 25 point increases in November, December, and then in February, which would take the rate to 3.75 per cent by early 2010.
NAB’s prediction of imminent rate rises is supported by the recent spate of positive activity including a seasonally adjusted 0.6 per cent rise in GDP.
But while prospects for an early return to positive growth are good, some analysts still argue that the road to recovery will be long and winding.
In its latest long term forecast, BIS Shrapnel is predicting a slow turnaround in the Australian economy due to an expected slump in business investment.
BIS Shrapnel’s Long Term Forecasts, 2009-2024 report suggests the Australian economy will endure its most difficult phase over the course of the next year, with a 17 per cent decline in business investment, falling household incomes and weak consumer spending.
