Australian Business Activity Drops to Low Levels

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.

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.