Aussie Firms on Alert as Confidence Slides Over China Slowdown

Australian business confidence fell in July, led by mining and construction firms as concerns mount about resource demand in response to China’s faltering growth outlook.

National Australia Bank Ltd.’s sentiment index slumped to 4 from a revised 8 in June, a survey taken July 27-July 31 showed. The business conditions gauge, a measure of hiring, sales and profits, slid to 6 from a revised 10.

“While confidence eased in most industries, much of the change stemmed from mining and construction firms, which includes a large share of non-residential and engineering firms, suggesting an escalation in Chinese growth concerns could be putting firms on alert,” said Alan Oster, NAB chief economist.

Australian policy makers are confronting conflicting forces: wages are stagnant and growth below trend, yet hiring this year is the best since 2008 and housing construction is surging on record-low 2 percent interest rates. The contrast was summed up in the central bank’s forecasts released last week that signaled unemployment had peaked even as a projected upswing in economic growth was put back a year to 2017.

Oster said that looking through the volatility, both conditions and confidence are nonetheless “suggesting a turnaround” in the non-mining economy.

“All three components of conditions, trading, profitability and employment, fell in the month, with trading falling the most, down 8, and employment dipping back into negative territory,” he said. “But despite the falls, both trading conditions and profitability remain relatively elevated.”

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