Overall business conditions reversed their recent downward trajectory in March, according to the latest business survey, but recovery is far from uniform, suggesting that interest rates may be losing their ammo.
The March edition of
NAB’s monthly business survey revealed that business conditions jumped to 6 index points, which is comfortably above the monthly survey average of 4. However, improvements remain largely confined to those industries that were already outperforming.
NAB’s chief economist,
Alan Oster said this could suggest that low interest rates are not stimulating the economy the way the Reserve Bank would like.
“Low interest rates are continuing to have a notable impact on the particularly sensitive sectors of the economy, like investor housing, but pass-through to the broader economy has been somewhat limited,” he said.
“The lack of a turnaround in non-mining investment intentions (both according to ABS and NAB data) is still a major concern, while a reacceleration in Sydney house prices suggest that the
RBA’s capacity to stimulate investment via monetary channels could be severely constrained – they already consider interest rates to be uncomfortably low.”
However, Oster says NAB is still predicting another rate cut as early as next month as the economy struggles to offset the impact of falling mining investment on domestic demand and commodity prices plummet.
“We still see another rate cut – most likely May but it is possible that if the economy continues to improve, the cut could be further delayed,” he said.
“We are not forecasting a second cut to below 2% - we see that possibility at 35-40% - significantly below the market’s current view. We see rate rises by late 2016.”
