Business conditions plunge again as NAB tips Federal Budget deficit of $10bn

Business conditions experienced one of the biggest falls in almost 20 years in the September quarter as the economic slowdown hit profits, sales and forward orders of Australian companies. Business conditions experienced one of the biggest falls in almost 20 years in the September quarter as the economic slowdown hit profits, sales and forward orders of Australian companies.

According to the National Australia Bank’s quarterly business survey, business conditions plunged 11 points in the September quarter to -4 points. Conditions are firmly stuck around levels not seen since 2001, when the economy was last entering a slowdown.

NAB’s chief economist Alan Oster says all components of business conditions deteriorated in the September quarter, including trading conditions (down 11 to – 4 points), profits (down 10 to -8 points) and employment (down 3 to -3 points).

“Firms identify a lack of customer confidence/demand as the key driver of the sales slowdown…while financial conditions – interest rates and to a lesser extent exchange rates – have improved a bit in the September quarter.”

Oster also says the outlook for forward orders, employment and business investment has also weakened.

NAB expects the deterioration in business conditions will result in Australia’s economic growth slowing from 4.2% in 2007 to 2.5% in 2008 and 1.3% in 2009. The bank’s economists expect the Reserve Bank will lower official cash rates from the current level of 6% to 4.5% by the middle of next year in response to the slowdown.

The bank also expects the Rudd Government to continue to try and boost the economy with more spending measures such as its recent $10.4 billion package to help low income families, pensioners and first home buyers.

“Fiscal expansion together with the negative impacts of slower economic growth may well see the Federal Budget turn to small deficit of say around $10 billion during the next couple of years,” Oster says.