Business Conditions Boom for Australians in Early 2018

”Circular Quay. Sydney.” (Public Domain) by Bernard Spragg

Operating conditions for businesses in Australia are almost at all-time highs, according to the NAB Business Survey for January 2018. The survey reveals that business conditions soared to an index reading of +19 from +13 in December 2017, significantly higher than the index’s long-term average of +5.
The long-term outlook for Australian businesses is also positive. The survey’s business confidence index also grew by +2 index points to its highest reading since last April. It is the second successive month of gains in business confidence and has been heavily influenced by a significant rise in the sub-index trading and profitability of firms down under last month.

Alan Oster, group chief economist at NAB, believes the latest figures “provide further confirmation of robust business activity in Australia”. Mr Oster added that improvements in business confidence may be linked to the “improved global economic backdrop”.

Earlier this month, the Reserve Bank of Australia (RBA) also provided a significant vote of confidence for the national economy, topped by strong Q4 2017 retail sales figures, opting to maintain interest rates at 1.5%. There was an air of confidence in the RBA’s latest policy decision statement. The bank refused to even acknowledge the recent volatility within the fx markets, which many investors that trade currency pairs online crave, with Wall Street experiencing its biggest one-day slide since 2011. However, as US stocks have rallied quickly since that setback, the AUD/USD has improved this month in the AUD’s favour, up from a low of 0.77622 on 9th February to 0.78529 on 13th February.

The Commonwealth Bank of Australia also agreed with the RBA’s view that the AUD will further strengthen in 2018. In fact, their exchange rate forecast for the end of 2018 is that “AUD/USD will trade closer to 0.8300 by year-end”. That prediction is founded on ongoing weakness in the US dollar as the global economy maintains its overall recovery, underpinning commodity prices.

However, the RBA’s governor, Philip Lowe, warned that inflation would be unlikely to return to normal levels until Australian businesses take steps to increase wages and create a sense of “shared prosperity” among workers down under.

Lowe said that a growth in wages is required for inflation to average “around the midpoint of the 2-3% medium-term inflation target”, with a growth in real wages providing a much-needed “boost [to] household incomes”.

Another positive angle to focus on Australia’s improved economic prospects in 2018 is the fact that more women are working, with record-high levels of females entering the workforce (60.6%). While labour market participation grew strongly for both genders in 2017, it was significantly larger for women.
Kristina Clifton, senior economist at the Commonwealth Bank of Australia, says the CBA anticipates “steadily rising female participation” in terms of employment in the next decade, which would “offset the effects of Australia’s ageing population” and maintain participation rates to their current levels.

Ms Clifton also added that more women in work would help to underpin household incomes and therefore household spending, which is a “particularly welcome development in the current climate of flat real wages growth”.

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