Australian Business Confidence Jumps on Vote; Conditions Weaken

(Bloomberg) -- Australian business confidence surged after Prime Minister Scott Morrison’s shock election win, while conditions again deteriorated, providing further grist to the central bank’s decision to cut interest rates.

Sentiment jumped 7 points in May from 0 the previous month, the biggest gain since the center-right government came to power almost six years ago, National Australia Bank Ltd.’s survey showed Tuesday. The conditions index -- measuring hiring, sales and profits -- slumped to 1 from 3.

“Trading conditions and profits are particularly weak,” said Alan Oster, chief economist at NAB. “The employment index which we are watching closely, partially reversed some of its decline last month, but is only around average.”

Reserve Bank Governor Philip Lowe cut rates last week for the first time since he took the helm in 2016 to encourage firms to hire and invest in an economy that’s sharply decelerated in the past nine months. Confidence was bolstered by Morrison’s come-from-behind win on May 18, which was bracketed by the NAB survey that ran from the 14th-24th.

Conditions “are now well below average -- the key message remains that the private sector continues to lose momentum,” Oster said. “The goods distribution industries, especially retail -- which is clearly in recession -- remain particularly weak, and manufacturing” is not far behind.

“Worryingly, forward orders declined further, and capacity utilization is now a touch below average,” he said. “With activity continuing to lose momentum, and capacity utilization declining, the survey continues to show weak price pressure across inputs and final products.”

Australia’s economy expanded in the first three months of the year at the slowest annual pace in a decade and inflation barely registered in the period. Growth is almost entirely supported by government spending currently and the RBA is urging Morrison and his ministers to address policies that will boost productivity and living standards.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke, Victoria Batchelor

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