News that Australian business activity has dropped to its lowest levels since
the global financial crisis has been the topic of concern from
figures released for October. The drop in activity is as a
consequence of the slow-down in the mining sector, a major feature of
the country’s resource-dependent economy. This is according to a
business conditions index created by NAB. The index tracks
employment, profitability, goods orders and other indicators. It
dropped
two points to reach minus five between October and September,
which is its lowest level since May 2009.

The decline
was a result of government cuts on spending and the high Aussie
dollar which has made the value of local products less competitive. A
NAB spokesman said the local economy had faltered in the last
quarter, and used it to explain the sequence of rate cuts issued by
the RBA throughout 2012 but alluding to the fact that the government
had been unable to shield the economy from a seemingly inevitable
slow down.

Australian Business Activity Drops to Low Levels

The property
market has been giving mixed signals while all other growth for the
year has been modest. Consumer focus has shied away from accumulating
more credit debt and has been focused on creating a savings account
with sustainability, as a buffer against future financial crises. The
overall sentiment from the consumer market has been labelled as
defensive and conservative as households have had to deal with a
number of rate increases over the course of the year. At the same
time, shopping for saving products online can still prove profitable,
even in spite of the RBA’s most recent rate cut.

NAB’s
business confidence index saw it drop to minus one, even though rates
had been cut earlier in October. This has brought the national cash
rate down to 3.25%, one rate cut away from the 3% it reached after
the global financial crisis. The government’s attempts at
“rebalancing” have included a 150 basis point reduction to
encourage local growth in spite of global economic instability. The
rate cuts were intended to stimulate manufacturing, housing and
retail, some of the weaker sectors of the economy.

Local retail
has been a weak performer, showing sporadic signs of improvement, but
also generally battling under the competitive markets that are
dominated by weaker currencies.

One RBA
official noted that i could take sectors like the property market a
while to pick up momentum. The NAB index revealed that capital spend
also fell to its lowest level since August 2009. NAB’s projection
for the $1.4-trillion Australian economy is that it will grow by 2.3%
which is in line with previous forecasts mad by the bank but less
than the 3% forecasted by the central bank and the government.

It appears
as though the government’s rate cuts have had a small influence on
business leaders as they try to rebound after the effects of the
strong currency have impacted on exports and promoted locals to start
shopping overseas in order to find lower prices.

Despite the
low rates the business climate has become much tougher and more
difficult to navigate through. One analyst commented that the changes
in the technology world, uncertainty and global competition were
catalysts for the strong local currency.

A steep drop
in commodity prices also took its toll on the economy in the middle
of the year. This resulted in the workforce being stripped down and
the unemployment rate inching upwards. Once comprising one third of
the Aussie export market, coal and iron ore ending up being the most
affected by the drop in demand for metals, especially stainless steel
by the Chinese. The mining and construction sectors are both in the
midst of near all-time lows, which is having a marked impact on
affordability for the average business and household.

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