Australia's NAB Dec business survey: Major surge in business conditions

Australia's NAB business survey for the month of December 2016 came better than its previous reading, with business conditions at 11 vs 6 prior (revised from 5), while business confidence stood at 6, unchanged from the previous month, ater being revised higher from 5.

NAB Monthly Business Survey - December 2016

The December NAB Monthly Business Survey indicated a reprieve from the steady moderation in business conditions seen late last year. That outcome points to a stronger outlook for the economy, but we remain cautious given other aspects of the Survey that suggest the rebound might prove to be temporary.

Weakness in retail conditions is particularly concerning, while we are not seeing any real signs in the Survey of a convincing recovery in non-mining investment – crucial to both near-term and longer-term growth prospects (although the drag from the mining sector should soon ease).

While some ‘bounce-back’ from the weather affected Q3 GDP can be expected, a return to a more subdued growth track thereafter still seem likely as the positive effects from the housing construction cycle, commodity exports, and (temporarily) higher commodity prices washes out. Two more 25bp rate cuts are still expected from the RBA this year in response to on-going low inflation and a more subdued growth outlook.