David Uren. From: The Australian
April 14, 2010
NEXT month's federal budget should show economic growth soaring to more than 4 per cent over the next year, with business trading returning to the boom conditions of before the global financial crisis.
The influential monthly business survey conducted by the National Australia Bank shows that after weaker trading in January and February, business conditions rocketed ahead last month, with order books fuller than they have been since July 2004.
"After a slower start to 2010, activity levels are now the strongest since January 2008," NAB chief economist Alan Oster said, adding the recovery was lifting all sectors of business. "It has been a very long time since business conditions improved significantly in every sector."
The Reserve Bank pays close attention to the NAB survey, which provides the most detailed and up-to-date information on trading conditions.
The survey, released yesterday, shows a much stronger business environment last month than depicted in business surveys released last week by the Australian Industry Group.
However, it is consistent with the RBA view that the economic recovery is gathering strength.
If the survey results are confirmed by official figures, it will put pressure on the government to bring in a tight budget, with spending cuts, to reduce the risk of inflation.
"If you're going to have forecast growth of 4 per cent-plus in 2010-11, you don't need a big contribution coming from the public sector. From an economic point of view, you would hope the government would put in place tighter budget policy," Mr Oster said.
It raises the prospect that the federal election to be held later this year will, like the 2007 poll, be held in an environment of rising interest rates.
Mr Oster said the survey showed spending by both consumers and business was rising at an annual rate of more than 5 per cent, which the Reserve Bank would regard as unsustainable.
Although the survey shows no sign of either business input costs or consumer prices rising, it does show that wage costs are starting to take off. Wage costs have risen by 1.1 per cent over the past three months, which is the fastest rate of increase since October 2008.
The NAB survey includes the best measure of how much spare capacity there is in the economy, and shows business is already operating at 82.1 per cent of capacity.
"Boom-time levels are around 85 per cent so there is still spare capacity but you are eating into it," Mr Oster said.
The survey shows employment, sales and profits are rising strongly in all industries. Employment is at levels not seen since November 2007, which was close to the peak of the resources boom.
Business confidence was slightly below the level in February, but remained close to historic peaks. "The survey is saying that people are confident, they have a lot of forward orders, and the momentum, after slowing a little bit, is now really going," Mr Oster said.
"Put on top of that, very large increases in the terms of trade with commodities income rising by $40 billion to $50bn, and there is an economy that will need some control."
