Australian business expectations are at a 17-year high

GARMISCH, GERMANY – JULY 16: Brody Wilson of the United States of America performs in front of the Zugspitze, the highest mountain in Germany, prior to the upcoming fourth stage of the Red Bull X-Fighters World Tour in Munich on July 16, 2014 in Garmisch, Germany. (Photo by Sebastian Marko/Red Bull via Getty Images)

In a sign that the RBA is on the right track stepping back from its rate cutting path, the latest Dun and Bradstreet survey of Australian business shows expectations for sales, profit, employment, and capital investment in the first quarter of 2017 surged to a 17-year high of 23.7 points.

That’s an incredible leap from the already positive +17 recorded for the current quarter. Dun and Bradstreet said this preliminary result “is 15 points above the 10-year average of 8.7 points”.

Stephen Koukoulas, who is an economics adviser to Dun and Bradstreet, said:

The economy is ending 2016 and moving into 2017 on a positive note. Business expectations for future sales remain upbeat and this has flowed through to a particularly buoyant outlook for profits. If these expectations are met in coming quarters, it is likely that the economy will be growing at a 3 to 3.5 per cent pace, which would represent one of the strongest growth phases for Australia since the global financial crisis.

Clearly this is a positive economic story. But what is remarkable about the confidence this survey shows is the gap that is opening up between the actual measure of conditions and expectations about the future.

Koukoulas added that:

“Both employment and non-mining investment have been soft spots for the economy. If the upswing in business expectations translates to stronger growth in jobs and investment, the odds favouring further interest rate cuts from the RBA will quickly recede.”

Indeed they will, because this is a remarkably buoyant survey.

Of particular importance to the RBA outlook for rates will be the employment picture with the survey showing it climbed to 18.9 for Q1 2017 from 13 in this current quarter.

Throw in the leap in the Capital Investment Expectations Index which more than doubled to 16.0 from 7.9, taking it to its highest point since hitting 17.4 points in Q4 2010, and the outlook looks very positive for business and by extension employees, and the economy in the year ahead.

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