Stronger official data for employment and retail trade, a stronger stock market and the resumption of house price growth appear to some to be the ‘green shoots’ of a strengthening domestic economy. However, this may be premature. A range of forward indicators continue to point to a sluggish patch over at least the first half of 2013 with the prospect of rising unemployment and several industries deeply recessed.
Falling commodity prices and a high Australian dollar continue to weigh activity. And currently there is little prospect that sectors outside the mining industry are in any position to seize the reins of growth.
The NAB survey highlighted the challenging environment faced by business in March. Business conditions deteriorated to -7 points, the lowest level since May 2009, reflecting a weakening in trading and employment conditions.
NAB predicts unemployment will rise to 5¾% by late 2013. GDP likely to be 2.4% in 2013, lifting to 3.0% in 2014.
The RBA left the cash rate unchanged at 3.0% at its April meeting, with its view of the global and domestic outlook little changed from its assessment at its previous meeting in March. With inflationary pressures well contained, NAB sees potential for two more rate cuts by the end of the year.
Renewed Euro-zone instability (Cypress) has taken a toll on global equity markets, which had strengthened quite markedly since late 2012, especially when compared to global economic activity and commodity markets. While latest data on world trade and industrial output is far from strong, it is a little better than the virtual stagnation shown through much of 2012. Business surveys in the advanced economies also show a lift in sentiment over future output. The pick up in 2014 reflects expectations that recession ends in Europe, Japan reflates and the big emerging market economies gather speed.