Australia Business Activity Down By 8 Points In May

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Australia Business Activity Down By 8 Points In May

Australia's Business Activity Down By -8 Points In May

The business conditions in Australia slowed down during May due to a drop in employment and sales. This is a sign that demand growth in Australia is now going down due to the aggressive tightening campaign from the RBA.

The survey related to business conditions was conducted by the National Australia Bank (NAB), which revealed that a reduction of -8 points was found in business conditions. But despite the recent drop, the overall value for May is still +8, which is higher than the average value.

Overall, the index reveals that more firms are pessimistic about their business prospects as opposed to those with optimistic views.

The final value of the survey was +14 during May, while the employment index also shed 7 points to reach +4 value. In addition, the forward orders, which suggest the demand in the economy, also shed 5 points during May.

Persistent Price Pressure Remains A Problem

With a drop in the forward orders and business conditions, the RBA's policy to maintain the current rates or even introduce rate hikes will become difficult.

That's why the trend of these surveys and indexes during the next few months will allow the RBA to understand whether any more action is required against inflation or whether it has done enough.

One of the worrying signs that will mount pressure on the RBA is the persistent price pressure in Australia. For starters, the labor costs have gone up by 2.2% from a previous value of 1.9%. Similarly, the purchase cost in Australia also jumped to 2.5% from an earlier value of 2.2%.

Just last week, the RBA took the markets by surprise when it added a quarter-point to its cash rate. This means the RBA introduced 400 bps worth of rate hikes in the last 12 months.

For now, the market is pricing in an additional 2 rate hikes this month that will raise the interest rates to 4.6%. Once the interest rates have reached that value, it will stay there for the rest of the 2023.

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