Australia’s economic recovery is intensifying as a National Australia Bank Ltd. report showed business conditions — measuring hiring, sales and profits — climbed to a record high even as the government was withdrawing its JobKeeper wage subsidy.
An index of conditions jumped to 25 points in March from 17 a month earlier, NAB said in a statement Tuesday. The employment index climbed to 16 points from 9, pointing to ongoing strength in hiring, despite the survey being conducted from March 19-31 that includes the end of JobKeeper.
The result “is particularly encouraging as we move through the tapering in fiscal support and out of the rebound phase,” said Alan Oster, chief economist at NAB. “It suggests that there may be a lift in business investment and hiring as the underlying pace of growth appears relatively healthy.”
The Reserve Bank of Australia closely monitors sentiment surveys and will likely to be encouraged by the positive signal for higher investment and hiring. Australia’s recovery from the pandemic has consistently outpaced policy makers’ forecasts, with unemployment dropping half a percentage point to 5.8% in February, already exceeding the central bank’s then-estimate of 6% by the end of this year.
Forward orders rose 7 points in the month to a record 17 points suggesting ongoing strength in activity, NAB said, adding that capacity utilization also saw another solid gain and is well above average.
Business confidence, in contrast, actually dipped in March, easing to 15 from 18 points, though still above its long-run average.
The RBA has cut its key interest rate to a record-low 0.10% and set the same target for the three-year bond yield as it aims to keep borrowing costs low across the economy. It is also now in the second tranche of a quantitative easing program that aims to keep the currency in check.
Governor Philip Lowe seeks to drive unemployment down below 5% in an effort to spark wages growth and revive inflation. He says rates won’t rise until inflation is sustainably back in the RBA’s 2-3% target.
The survey suggests inflationary pressures have picked-up, but remain soft.
“Price pressures have lifted in recent months, largely on the input side with a lift in employment and some evidence of higher input costs,” Oster said. “Final products price inflation has also risen but are tracking at a slower rate suggesting that not all of the cost increases have been passed onto the consumer.”