Australia business optimism pulls back from post-lockdown highs

SYDNEY (BLOOMBERG) – Australian business confidence pulled back from the very high levels of the immediate post-lockdown period, even as forward indicators continued to point to strong momentum in the highly-vaccinated economy.

Business confidence dropped to 12 points last month from a downwardly revised 20 in the prior month to remain “well above” its long-run average, National Australia Bank (NAB) said in a statement Tuesday (Dec 14).

The conditions index – measuring hiring, sales and profits – advanced to 12 points from 10. “Confidence remains high across states and industries, albeit it has come back to earth a little,” said NAB chief economist Alan Oster. “Overall, these results indicate a strong recovery is under way.”

The nation’s two most populous states began easing stay-at-home orders in October after hitting vaccination targets, ending a protracted lockdown that caused the A$2.1 trillion (S$2.04 trillion) economy to contract last quarter. The lifting of restrictions prompted an initial surge in activity.

But coronavirus cases are again on the rise, with New South Wales recording its highest infections in more than two months as authorities battle a new variant. “Notwithstanding the possibility of new disruptions related to the omicron variant, the economy is well placed to carry this momentum forward over coming months and into 2022,” Mr Oster added.

Today’s report showed inflation indicators were elevated, driven by higher labour costs. Overall output prices and retail inflation strengthened with both now well above 1 per cent in quarterly terms, it said.

“As the employment recovery continues and the labour market tightens further, these gains should eventually translate into growth in underlying wages, but how quickly that occurs remains to be seen,” Mr Oster said.

Australia’s central bank is using ultra-low interest rates to try to tighten the labor market and boost price pressures. Governor Philip Lowe has reiterated that rates will not be increased from the current 0.1 per cent until underlying inflation is sustainably back within the central bank’s 2 per cent to 3 per cent target band.

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