Business confidence falls as Eurozone crisis continues

Businesses are losing confidence in the economy even though conditions have slightly improved in February, according to the latest research from NAB, with the Eurozone crisis weighing heavily on entrepreneurs’ minds.

The latest figures from the NAB Monthly Business Survey for February show conditions improved slightly with a pick-up in trading conditions and profitability, although employment conditions are still soft.

NAB says the RBA may cut rates again in May if the exchange rate remains high and banks still experience higher funding costs.

NAB economist Alexandra Knight told SmartCompany this morning she believes the improvement in conditions was marginal, “so we’d characterise the economy as broadly tracking sideways”.

“Confidence is still positive, so I think this is a reflection in being disappointed there was no rate cut in February. And the strength of the Australian dollar is still weighing in there.”

NAB says the major contributing factors are the Eurozone and the high Australian dollar, which continue to put pressure on businesses.

“Weakness in the domestic economy in Q4 has continued into the early months of 2012. With business conditions tracking sideways and forward indicators from the NAB survey still weak, GDP growth (ex-mining) is expected to be around 3.25% (6-month annualised) in Q1.”

“Consumer spending remains subdued, and forward indicators for building and the labour market are flat.

Trading conditions have increased, with profitability expectations also moving from negative to positive. However, the index suggests forward indicators of demand have continued to soften.

Forward orders have fallen further into negative territory, along with exports, while employment expectations have fallen as well.

“Overall, while this month’s activity reading was slightly better, forward indicators of demand generally softened, suggesting near-term activity may continue to drift.”

Conditions improved in the wholesale and transport and utilities industries after a sharp deterioration in the previous month, with conditions strongest in recreational and personal services, and mining.

However, conditions continue to remain weak in retail, manufacturing and construction, and confidence is down across most industries.

Conditions rose in Western Australia in February, and also improved in Queensland and South Australia. However, they were weaker in Victoria. Confidence is still weak among the states, with South Australia the only one to record an increase.

The forward orders index has fallen, although capital expenditure rose in February. Labour costs grew in February as well, along with price inflation and purchase cost pressures.

Employment conditions are strongest in mining, transport and utilities, and were weakest in manufacturing and construction. However, profitability has increased in construction, and fell in the mining sector.