Business confidence improved considerably in December, after deteriorating to its weakest level since April 2009 in the previous month. There was relief from the last minute agreement for the US to delay the “fiscal cliff”, and the signs of a strengthening Chinese economy have helped. This together with the RBA rate cut in December have helped business confidence.

The slight tick up in business conditions in December reflected modest improvements in profitability and employment conditions, partially offset by a slight deterioration in trading conditions. Overall, the survey implies underlying demand and GDP growth in the March quarter of around 2¼% and 2¾% respectively – a further slowing in growth from already below trend rates.

Activity and forward indicators remain poor – particularly wholesale, manufacturing, retail and construction.
We expect three rate cuts, starting in February and growth of only 2% in 2013.

Source: NAB Monthly Business Survey – December 2012