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PR Newswire
14-07-2015, 10:25 PM
Confidence hits two-year high but firms reluctant to invest
MICHAEL RODDAN
BUSINESS SPECTATOR
JULY 14, 2015 12:04PM
Business confidence has hit a two-year high, while business conditions are the best in nearly a year, but firms are reluctant to invest, requiring an “extremely high” rate of return compared with current record-low interest rates, according to National Australia Bank.
Business confidence in June hit its highest level since the federal election, with firms’ sentiment now as strong as when the Abbott government first came to power in September 2013.
Meanwhile, business conditions — a measurement of the employment, trading and profit environment — rose to its highest level in nearly a year, according to NAB’s monthly business survey.
NAB’s confidence index rose to 10 points in June, from 8 in May, while conditions rose to 11 points from 6.
While conditions still vary greatly across industries with the services sector continuing to outperform, business confidence is now positive across all industries, except mining, which is neutral.
“Improvements in both confidence and conditions over recent months are starting to suggest a more convincing turnaround in the non-mining sectors is under way,” NAB chief economist Alan Oster said.
Business confidence was boosted by lower interest rates, a lower Australian dollar and a better-received budget, while conditions were now in a “decisively positive” trend with the non-mining industry finally gaining some traction, Mr Oster said.
However, he said the employment environment was a concern, despite NAB lowering its jobless rate peak to 6.25 per cent, while the “bellwether” wholesale industry remained at weak levels.
Mr Oster said he was expecting no further interest rate cuts, after the Reserve Bank trimmed the official cash rate in February and May to the current record low level of 2 per cent.
The NAB survey included a new question to firms on their hurdle rates for investment — the anticipated rate of return they require before committing to investment — which showed the average hurdle rate was 13 per cent.
This was “extremely high” in the currency low rate environment, Mr Oster said. “Hurdle rates tend to be slow to adjust, which can impact the potency of RBA rate cuts.”
A recent RBA research paper showed that a firm’s “gut feeling” was more likely to dictate spending than the current level of interest rates.
The upbeat reading from business firms today stands in stark contrast to consumer confidence, with this week’s ANZ-Roy Morgan consumer confidence index plunging to a 12-month low as nerves are rattled by China’s stockmarket fall and Greece’s debt crisis.
MICHAEL RODDAN
BUSINESS SPECTATOR
JULY 14, 2015 12:04PM
Business confidence has hit a two-year high, while business conditions are the best in nearly a year, but firms are reluctant to invest, requiring an “extremely high” rate of return compared with current record-low interest rates, according to National Australia Bank.
Business confidence in June hit its highest level since the federal election, with firms’ sentiment now as strong as when the Abbott government first came to power in September 2013.
Meanwhile, business conditions — a measurement of the employment, trading and profit environment — rose to its highest level in nearly a year, according to NAB’s monthly business survey.
NAB’s confidence index rose to 10 points in June, from 8 in May, while conditions rose to 11 points from 6.
While conditions still vary greatly across industries with the services sector continuing to outperform, business confidence is now positive across all industries, except mining, which is neutral.
“Improvements in both confidence and conditions over recent months are starting to suggest a more convincing turnaround in the non-mining sectors is under way,” NAB chief economist Alan Oster said.
Business confidence was boosted by lower interest rates, a lower Australian dollar and a better-received budget, while conditions were now in a “decisively positive” trend with the non-mining industry finally gaining some traction, Mr Oster said.
However, he said the employment environment was a concern, despite NAB lowering its jobless rate peak to 6.25 per cent, while the “bellwether” wholesale industry remained at weak levels.
Mr Oster said he was expecting no further interest rate cuts, after the Reserve Bank trimmed the official cash rate in February and May to the current record low level of 2 per cent.
The NAB survey included a new question to firms on their hurdle rates for investment — the anticipated rate of return they require before committing to investment — which showed the average hurdle rate was 13 per cent.
This was “extremely high” in the currency low rate environment, Mr Oster said. “Hurdle rates tend to be slow to adjust, which can impact the potency of RBA rate cuts.”
A recent RBA research paper showed that a firm’s “gut feeling” was more likely to dictate spending than the current level of interest rates.
The upbeat reading from business firms today stands in stark contrast to consumer confidence, with this week’s ANZ-Roy Morgan consumer confidence index plunging to a 12-month low as nerves are rattled by China’s stockmarket fall and Greece’s debt crisis.