Confidence down, but growth should be strong:NAB

Although business confidence has slumped, Australia’s economic growth is expected to remain quite high, at 3.5 per cent.

How can that be?

The economists, who compiled the National Australia Bank’s latest quarterly business survey, found that the Australian economy is “weakening faster than expected.”

But they also saw special factors, which should sustain growth.

They said these included:-

• higher terms of trade
• tax cuts and
• a rebound in farm production, after Australia’s long drought.

High demand from China for basic Australian exports, like iron ore,is keeping prices very high. Most economists expect that to continue, at least for a while, even if global demand eases. They say that China, in particular, has many domestic projects to complete.

The first tranche of the Federal government’s promised $31 billion worth of tax cuts – which looked positively inflationary just a few months ago – now appear much less dangerous. Almost necessary, in fact, as recent interest rate rises bite.

And the good start to the new season, that many Australian farmers are now, finally, enjoying is also likely to help.

Economic management, though, is likely to become even more difficult.

The NAB’s survey results confirm that Australia could well be headed for a recession, if it wasn’t for the strong resource industries, which still seem likely to surge ahead.

Business confidence, for example, is back at 1991 levels. That is back to the levels last seen during the tech wreck of those times.

But the NAB economists are still predicting 3.5 per cent economic growth. Although below recent levels, that is still quite high.

So what’s the catch?

Well, the resource States, Western Australia and Queensland are likely to get the lion’s share of that growth. So a two speed national economy is a significant risk.
Growth could well slump in Australia’s most heavily populated States, New South Wales and Victoria.

So the years ahead will still have their problems, for most Australians.