(Australian Associated Press)
The recovery of the non-mining sector may be slowing down, which could unsettle the job market and lead to further interest rate cuts in 2018, National Australia Bank says.
NAB’s monthly business survey shows both business conditions and confidence fell in October.
NAB chief economist Alan Oster said that, although the conditions subindex was at +6.0 points and remained above its long-run average, it was now exhibiting a clear downward trend.
“While conditions are still at above average levels, if the recent trajectory continues we could be looking at an economy that is rapidly losing momentum,” Mr Oster said in a note.
“In addition to that, business confidence is also back below average levels. That will need to change if the Reserve Bank hopes to see their anticipated recovery in non-mining business investment.”
The survey showed that both employment and trading conditions deteriorated, and profitability remained steady, in October.
Mr Oster said the softer employment conditions subindex was the biggest concern as it had fallen to the neutral level of zero last month, on the cusp of slipping into negative territory.
“Any further weakening would suggest future employment growth that is inadequate to prevent a deterioration in the unemployment rate,” he added.
Mr Oster said the survey results had not drastically altered NAB’s economic forecasts until the end of 2017.
However, the bank was concerned about economic growth, based on commodity exports and housing construction, beyond next year.
“Beyond the near-term, impetus from those growth drivers will fade which will see the economy slow into 2018,” Mr Oster added.
“Two more 25 basis point rate cuts are still expected from the Reserve Bank next year in response to ongoing low inflation and a more subdued growth outlook.”