Wednesday, October 29, 2008

Very little economic growth, especially in Victoria

That's how the NAB sees things - and it's bad news

Business conditions in Victoria have plunged since June making the state the worst place to do business in mainland Australia - a distinction the state has grabbed from NSW.

The National Australia Bank quarterly business survey finds that conditions in Victoria moved from being clearly positive to clearly negative in the three months to September, the only state apart from Tasmania to experience such a plunge.

Victorian conditions are now their worst since 2001.

Businesses in Victoria are also the least confident in the nation about the three months ahead, apart from those in South Australia.

The National Australia Bank says that in the past changes in confidence about the future have been a good guide to changes in actual conditions, suggesting that Victorian conditions are about to worsen further...

The state Opposition leader Ted Baillieu seized on the finding saying that the Premier John Brumby had “not only failed to support the manufacturing industry, but has also sent our economy down the wrong path by seeking to make it reliant on the finance and trade services sectors”.

Conditions among manufacturing businesses were the worst of any sector nationwide, with conditions in the retail, wholesale and finance sectors also sharply negative.

Trading conditions, export sales and forward orders all fell sharply over the 3 months to September. Retail margins were falling as the costs faced by businesses rose sharply driven by higher oil prices and a lower dollar. Average hours worked remained broadly stable while employers wound back their plans for further hiring. They also Investment plans were also reigned in.

On the basis of the survey the Bank's chief economist Alan Oster has wound back his forecast for economic growth next year to just 1.25%. Excluding mining and agriculture, the Australian economy would scarcely grow.

“Our forecasts imply that the rest of the economy will slow to growth rates of less than 0.50% over the next year or more,” Mr Oster said.

“Employment growth should slow pushing the unemployment rate toward 6% by late next year and beyond it in 2010.”

Asked about his forecasts the Opposition Leader Malcolm Turnbull was less downbeat, saying Australian would “certainly” avoid a recession.

“Growth will slow next year. The estimates that are around say that our economy will grow at about 2%. I think most people feel it will be less than that. I don’t think the Government would have been spending $10 billion a few weeks before Christmas if they thought growth was going to be 2%. But I don’t think it’s going to go negative,” he said.

The Prime Minister told a business dinner that even when markets began to stabilise, the impact of the global financial crisis on Australia's real economy in would be “felt into the future on jobs and on growth”.

The NAB is forecasting recessions in the US, Japan, the UK and Europe, with sharply slowing growth in the rest of the world. It expects Australia's terms of trade to collapse 30%.

Victorian businesses expect to perform the worst in the nation in the during the year, edging out NSW for the honour.

Western Australian businesses remain the most optimistic.