The Global Economy Is Picking Up But Australia's Still Stalling: Here's What's Going On

The bad news is coming thick and fast on the economic front today. Following on from the disappointing Australian retail data is news from Dun & Bradstreet that Australian Business is still in the doldrums.

The survey is just more evidence of the grand disconnect in the Australian economy between what outsiders are telling Australians about the relative strength of the economy on a global basis and what is occurring in the domestic economy.

What is striking in the D&B survey is just how weak sentiment is out in the real economy.

…the number of business anticipating increased sales activity dropping from 18 per cent in the previous quarter to 11 per cent in Q4. With just two per cent of businesses planning to increase spending next quarter, the capital investment index has remained in negative territory and relatively unchanged at -1.3 points. Additionally, with just three per cent of companies intending to hire new staff in the final quarter of the year, the employment index has failed to move into a positive range, sitting at -2.8 points compared -3.3 a quarter earlier.

We could blame this on the longest election campaign in Australia’s history but D&B go on to say:

The outlook for the remainder of the year suggests that businesses do not view the conclusion of this month’s federal election as a potential springboard for the economy. Businesses also appear to consider the Reserve Bank’s latest rate cut as reason for continued caution, rather than investment.

With just 5% of businesses optimistic about increased growth in the final quarter of the year compared to 2012, Dun & Bradstreet has found that expectations for sales, investment and employment in particular are flat and at a low level.

The chart below tells the story graphically.

What is striking though is just how difficult the environment is becoming for Australian Business.

45 per cent of businesses view operating costs as their biggest barrier to growth in the year ahead, while 64 per cent expect cash flow will be an issue.

That is: income is down and expenses are up.

Weakness in business surveys are key indicators of the economy and particularly where employment is tracking and its multiplier effects on the economy.

The RBA will be watching surveys like the D&B and NAB Business survey together with retail sales closely and if things don’t pick up in the months ahead rates in Australia will be coming down again.

Disclosure: Greg McKenna is an active currency trader and is currently short AUD.

Follow Greg McKenna on Twitter.

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