SOC GEN: Here's Why The World Is Improving For Australian Business

Getty/ Lisa Maree Williams

Earlier this week the NAB business survey produced a stunning surge in business conditions even though confidence fell a little.

It was a result that took the NAB and market by surprise, and one which has seen many pundits discount it as a possible aberration given other recent data which give a much more pessimistic view of the economic outlook.

SocGen’s chief economist for Asia Pacific, Klaus Baader, is not one of those however.

Baader told Business Insider that if you take an Ifo methodological approach (like the big German Business survey) and combine confidence with conditions you get a better understanding of what is really going on in businesses. And if you look at the chart to the right, it shows the world is improving for Australian business.

Source: Klaus Baader, Societe Generale

Baader said: “It makes sense to me to do this, because sentiment surveys usually set questions about future prospects in comparison to the current situation.

“Hence, when the current situation is seen to be improving a lot, an unchanged outlook in fact represents an improvement as well.”

Simple.

It’s still the case that local traders and economists will want to see the next NAB survey as confirmation of this month’s strong result on conditions. But there remains some unease about whether businesses really area seeing a meaningful upswing in activity.

If Baader is right – and his approach shows the combined index at its highest level since April 2010 – then the NAB survey is a strong counter to the recent poor data flow in the economy. As he says, the investment prospects for non-resource sectors in Australia might look better than many believe.

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