The current quarter will see Australia slide into an official recession, according to the latest business survey from the National Australia Bank.

That’s despite a small improvement in business confidence — notwithstanding a ‘crunch’ in business conditions, which fell another 9 points in February to levels not seen since midway through 1992 at the depths of the last slump.

Employment and trading conditions fell with the outlook for jobs the worst since late 1991, pointing to further pressures on employment in coming months. This was reinforced by a sharp fall in the outlook for new orders.

The bank said that, “Overall the survey suggests a further step down in demand in Q1 — that is, further negative growth.”

Mining, manufacturing and recreational services were gloomiest of the industry sectors. But with the first payments from the second Federal stimulus package going out tomorrow, retailers are a bit more confident, but still at last recession levels.

David Jones is trying to get in for its job, announcing a free $20 gift voucher for every $200 worth of its gift vouchers bought from today until next Sunday. The retailer claims its offering Australians a chance “to get more value from their stimulus payment”.

The NAB’s survey of business confidence and conditions for last month, released this morning. It doesn’t make cheery reading and confirms the impression from recent surveys and last week’s fourth quarter economic growth figures that the economy is sliding faster than previously thought.

The NAB said business conditions fell 9 to an overall reading of -20 index points — a new recent low and a level not seen since June 1992: Trading conditions fell 11 to -15 points, and profits by 5 to -17 index points. In both cases these readings have returned to the lows prior to the Government’s first fiscal stimulus. Employment fell 10 to -27 points — the largest fall in the Monthly Survey’s history, to a level not seen since December 1991.

“Forward orders fell 7 to -27 points — clearly a new recent low and to a level last seen in June 1991. Stocks were further run down — falling 2 to -9 index points. Capacity utilisation fell 0.9 points to 79.4% — the first reading below 80% since April 2001.

“Exports up +7 points – but remain at historically very low levels (-26 index points). Capital expenditure remained broadly unchanged at -20 points — trending down.”

The Bank said the level of confidence among businesses rose: “Confidence, on the other hand, rose +10 to -22 points (albeit, to a level still no better than the bottom of the 1990/91 recession). We have lowered Australian GDP forecasts in 2009 to -1% and to +0.9% in 2010. In financial year terms, that implies +0.25% in 2008/09 and –0.50% in 2009/10.”

“These lower growth forecasts reflect the poor start point in late 2008 and early 2009, together with forecast weaker exports and business investment as the global economy / trade shrink further and business cuts back on employment and capex.”

The bank says it now sees unemployment worsening “faster and further reaching 6.5% by end 2009 and 7.5% by late 2010. In these circumstances, we see the RBA as eventually needing to get the cash rate down to around 2% — with cuts of around 100 points in Q3 and a final 25 points in late 2009.”

Peter Fray

Help us keep up the fight

Get Crikey for just $1 a week and support our journalists’ important work of uncovering the hypocrisies that infest our corridors of power.

If you haven’t joined us yet, subscribe today and get your first 12 weeks for $12.

Cancel anytime.

Peter Fray
Editor-in-chief of Crikey