Business confidence rises in January, but conditions still soft: Economy Roundup

Business confidence has surged during January, but actual business conditions have declined mainly due to weaker trading and profits, the latest NAB monthly business survey results show.

The survey reveals business confidence jumped seven points to 15 following an 11-point fall in December. The highest confidence was found in the manufacturing, finance and business services industries, and “appears to be stabilising at surprisingly high levels”.

However, business conditions have declined, with the survey falling seven points to +3, which NAB chief economist Alan Oster said in a statement reflects large falls in trading conditions.

The survey also found capital expenditure has remained weak, along with credit conditions, with the difficulty in finding finance index moving down from five points to four.

Labour costs increased by 0.9% on a quarterly basis. Oster says the results are slightly disappointing but show the economy is still recovering.

“While 2010 looks to have started a touch softer than late 2009, the fact remains that the January survey still points to an economy with a fair degree of momentum and high levels of business confidence. It is also the case that business is re-employing and increasing capacity utilisation and hours worked.

“With public sector demand still expected to grow by around 5½% in 2010 we are happy to keep our GDP forecasts at 3% (or around 3 ¼% from December 2009 to December 2010). For 2011 we still see growth accelerating to around 3 ¾% in 2011. In financial year terms this equates to growth of 2% in 2009/10 and 3¼% in 2010/11.”

Oster also said unemployment will fall to about 4.75% by the end of 2010, and to 4.25% by the end of 2011.

RBA decided to leave rates flat “for time being”

Meanwhile, the Reserve Bank of Australia has said in minutes of its February meeting that current monetary conditions are “no longer exceptionally accommodative”, after the board decided to leave the rate unchanged following three consecutive rate rises.

The board said the “stronger case” at its last meeting was to leave rates unchanged “for the time being”. The market was surprised by the move, with analysts previously expecting another .25% rise to 4%.

Overseas, Japan’s economy has grown by 1.1% during the fourth quarter due to a rebound in domestic demand and more corporate investment, relieving local fears for the major trading partner.

However, some economists have said the growth is due to the massive stimulus package released by the Government, and that the effects of efforts from the new Government to boost GDP are still not able to be seen.

In Australia, the sharemarket has opened slightly higher today, despite no leads in the US due to the Presidents’ Day public holiday.

The benchmark S&P/ASX200 index was up 51 points or 1.14% to 4597.2 at 12.10 AEST, while the Australian dollar also increased to US88c.

ANZ shares rose 2.9% to $21.09, while Commonwealth Bank shares also rose 0.9% to $52.05. NAB shares gained 1.9% to $24.76.

Westpac announces 33% in first-quarter profit

Westpac shares rose 4.5% to $24.34 after the company announced its quarterly results.

The lender recorded a 33% increase in first-quarter cash profit to $1.6 billion from $1.2 billion one year ago, with asset impairments also halving to about $400 million.

“Although we remain cautious on the economic outlook, we believe that the worst of the crisis is now behind us and this is reflected in the significant fall in impairment charges,” Westpac chief executive Gail Kelly said in a statement to the ASX.

“Consumer asset quality remains strong although we expect a small increase in delinquencies throughout the year.”

Wine and beer group Foster’s has said the recovery of the US economy will give the company an extra boost in the second half of the year, after it recorded a 13.5% decline in first-half net profit to $355.7 million.

“Prevailing economic conditions remain challenging in the Americas, however there are emerging signs of stabilisation,” chief executive Ian Johnston said in a statement.

Property group Mirvac has also announced a net profit of $47.16 million for the first half of the financial year, compared to a net loss of $645.7 million in the previous corresponding period.

OneSteel has also announced a 48.6% decline in first-half net profit to $117.4 million, and said the rest of the financial year will remain challenging. The company said further market volatility is expected in the short-to-medium term.