Business confidence dives on floods but conditions remain steady

Torrential rains in December have seen business confidence plunge in Queensland and fall sharply across the rest of the country, NAB’s latest monthly business survey shows.

Business confidence fell an incredible 21 index points in Queensland in December, dragging national confidence down nine index points to -3.

While the December survey was taken in the middle of January, when floods were starting to hit Brisbane, further falls are expected in the January survey, when businesses in flood-affected areas will report on the full impact on their businesses.

Many of the sectors hit hardest by the rains and flood saw confidence plummet. National confidence in the mining sector fell a staggering 70 points, while confidence in the transport and utilities sectors also fell.

While actual business conditions remained relatively strong in December, NAB’s head of Australian economics and commodities, Rob Brooker, is bracing for a dire survey in January, when the impact of the floods is likely to hit conditions.

“I think that the scary bit is when we start looking at what might happen in January.”

While every sector in Queensland is likely to take a hit, on a national basis the mining, agriculture, utilities and transport sectors are likely to be most affected by the floods.

Brooker says the flood crisis has been “super imposed” on an economy that appeared to be slowing in late 2010, with weak consumer confidence, poor housing sector growth and patchy business conditions.

However, he does see a few bright spots, including a slightly improved performance in the beleaguered retail sector, which reported better trading conditions in December.

“There does seem to be a turn upwards in conditions and the outlook in retail. Admittedly that is only one month, and the seasonal movement is pretty big in December,” Brooker says.

“Nevertheless it does give us a bit of hope for retailers.”

Brooker is also optimistic on the medium- to long-term outlook.

“Beyond January you are going to have the reconstruction work that is going to go on for another 12 to 18 months, or perhaps another few years.”

Beyond that, the “terms of trade boom” created by surging exports from the mining sector is likely to underpin healthy economic growth in the coming years.

“I think the medium-term outlook is really pretty good,” Brooker says.