By James Glynn
SYDNEY–Australian firms reported strong gains in business conditions and rising confidence in June, shrugging off global turmoil including plunging Chinese share prices and uncertainty over Greece’s future in the eurozone.
Business conditions rose to their highest level since last October providing a strong signal that a long-awaited recovery in investment in non-mining industries is starting to get underway, albeit slowly.
Reserve Bank of Australia Gov. Glenn Stevens has long called for a revival in optimism and the return of so-called “animal spirits” of business to help lift the economy as it battles headwinds including falling commodity prices and the end of a decade-long mining investment boom.
The National Australia Bank’s business conditions index rose 5 points to show a net balance of +11. Business confidence rose 2 points to +10, the strongest reading since September 2013. Trading conditions jumped 8 points to +20.
“Firms appear to have shrugged off risks in the global economy as the business environment continued to improve into June,” the survey said.
“Improvements in both confidence and conditions over recent months are starting to suggest a more convincing turnaround in the non-mining sectors is underway,” it added.
Australia’s economy is transitioning away from a reliance on mining to fuel growth, toward other sectors such as services like tourism, education and health care. So far, the process has been slow, keeping the door open to lower interest rates.
With firms reporting better trading conditions, policy makers will be watching to see if it translates into stronger hiring, lowering the unemployment rate, currently at 6.0%.
Recent jobs data has been stronger than expected, showing a steady fall in the unemployment rate, defying central bank expectations that it would rise.
NAB said the domestic economy remains weak overall, but recent data have shown some positive signs.
“A better starting point means unemployment will peak lower than previously expected (around 6.25%), but will remain elevated,” it said.
“Our forecasts suggest no more cuts from the RBA. While recent global turmoil, especially in Chinese equity markets, present some downside risk, the strength of local data suggests upside risks,” NAB added.
The move in interest rates is likely to be up, but not until late 2016, it added.
-Write to James Glynn at james.glynn@wsj.com
