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Business confidence eased from its recent high but remained elevated in the March quarter. Business conditions were soft, but are now much better than 6-months earlier. Forward indicators point to further modest improvements over coming months, but still indicate below trend rates of growth and soft demand for labour.

The survey measures of price pressures remain muted.

Business confidence eased in Q1 from recent highs, with the monthly survey showing a steady deterioration over the quarter. Some confidence was evident, but it remains soft relative to long-run historical averages.

All states and most industries felt a drop in sentiment (retail and finance/ property/ business were the only exceptions). Nevertheless, confidence has remained at relatively elevated levels since the lead up to the Federal election, supported by accommodative monetary policy (low interest rates and lower AUD) – contributing to healthy housing sector activity and robust asset prices. However, with the AUD stabilising at elevated levels, the competitiveness of some industries will continue to come under pressure. NAB's special question shows that wholesale and manufacturing remain most affected by the AUD, while recent AUD strength has probably eroded mining profit margins.

Business conditions rose to their highest level in 18-months. The Survey points to six-month annualised GDP growth in the March quarter of around 3% (ie. below trend). Forward orders lifted in the month and suggest much stronger domestic demand in Q1, but capacity utilisation remains subdued indicating little impetus for business investment.

Business conditions rose across most industries in Q4, but most remain quite weak. Services are a stand out with recreation & personal services, and finance/ property/ business services recording a positive net balance, as did transport & utilities. Conditions are weakest in wholesale – a bellwether for the economy – followed by construction and mining. Conditions rose across all states except WA.

Business investment intentions (next 12 months) dipped slightly in the March quarter, but remain surprisingly elevated. However, mining intentions are still negative (-3 points), despite an improvement, and are under-weighted in the survey. Near term employment expectations lifted.

Product price inflation remained subdued in the quarter, recording an annualised rate of 0.7% (0.2% in the quarter). Retail price inflation in the Survey lifted slightly, but is more subdued than CPI inflation for Q4. Labour and purchase costs growth remain modest.

Source: NAB Quarterly Business Survey