In good news for the Australian economy, Australia’s business activity is almost back to its pre-coronavirus level. That’s according to National Australia Bank Ltd (ASX: NAB) findings in its latest Quarterly Business Survey today.
The survey reported most industries were experiencing above-average conditions, and companies were confident they would continue to grow. Profitability, trading and employment are all in expansionary territory.
The NAB survey predicted the economy would continue to grow at a healthy rate, despite supports such as JobKeeper winding up. Let’s take a closer look at the survey’s results.
Australian economy ‘improving quickly’
The NAB Quarterly Business Survey found that Australia’s economic recovery from last year’s COVID-19-induced recession is nearing completion.
Capital expenditure expectation strengthened to its highest level since the mid-90s. Capacity utilisation – the instances of businesses working to their maximum capacity – rose to 82.5% in the March quarter. This will most likely support hiring and investment activities.
NAB Group’s chief economist Alan Oster said the findings were “consistent with our forecast that GDP will have fully recovered in [quarter 1]”.
Back in business
Business conditions have improved in all mainland states and territories except South Australia. Western Australia leads the pack, reaching its highest level of business conditions since 2008.
Business conditions improved in all industries except for a slight easing in retail in the last quarter. However, retail and wholesale reported the strongest conditions across all industries. The construction sector has once again reported the weakest conditions.
Business confidence also improved in all industries except retail, suggesting retail businesses believe they may have already reached pinnacle gains.
It is worth remembering that conditions provide a guide as to how fast activity is growing, but capacity utilisation provides an indication of the level of activity.
In this quarter, we hit an important milestone; not only does it appear that activity continues to grow at a good pace, but the capacity utilisation index now suggests that the level of activity is back around its pre-COVID level.
The survey also found labour conditions have recorded strong gains as the employment index continues to improve. Expected employment in 3- and 12-months’ time also gained, an encouraging finding in light of JobKeeper coming to an end last month.
While a return to a pre-COVID level of activity would be an important milestone, it would not be a case of ‘mission accomplished’ as we would normally expect the economy to grow over time.
That is why a very welcome aspect of the survey is the strength across all the leading indicators, which suggests that the recovery should continue at a relatively strong pace.