The Australian economy has shaken off Covid Omicron, with business conditions and confidence strengthening in February, according to the latest survey from the National Australia Bank.
The survey did not reveal any early impact from the Russian invasion of Ukraine, but intimated that that was coming and would emerge in the March quarter’s Consumer Price Index in late April.
But it confirmed that the strong consumer spending evident in the December quarter’s GDP report last week, re-emerged in February after January’s Covid driven slowdown.
The NAB survey revealed that after January’s fall, the conditions index rebounded to be above its long-run average while confidence built on its January rise for another gain last month.
The rebound came on the back of a strong rise in the employment index – reflecting the dual impact of the improvement in the Covid Omicron outlook.
Fewer health-related employment disruptions and the consequent strong rise in demand for staff, as well as improvements in trading and profitability.
“After Omicron caused significant disruption to businesses in January, the latest survey results show things were getting back on track,” said NAB Group Chief Economist Alan Oster.
“The employment index has improved considerably as the labour market strengthens, after the virus caused many to be unable to work due to illness or isolation requirements at the peak of the recent wave.”
The NAB said almost all mainland states and industries shared in the upswing, but WA did see conditions ease as a planned border reopening was briefly postponed.
Business conditions rose 7 points (pts) in February, to +9 index points, to be back above their long-run average.
“The result was driven by a sharp rise in the employment index which rose 9pts to +8 index points. Trading conditions (up 2pts to +10) and profitability (up 3pts to +5) also rose,” NAB pointed out.
Business confidence was up 8pts in February to +13 index points, after the strong rise in January which was a rebound from December’s fall.
Confidence rose across all industries and most states, but weakened in WA and Tasmania.
“There was also a broad-based improvement in confidence, again with the exception of WA and Tasmania, and forward indicators rose,” the NAB commented.
Despite the positives in the survey, NAB pointed to some negatives.
It said businesses continued to report elevated costs growth, “although purchase cost growth eased slightly from the record levels reached in January.”
“Final product price inflation also remained elevated with retail prices strengthening to over 2% in quarterly terms, suggesting that cost pressures are increasingly being passed on to consumers.”
BUT NAB also pointed out that these cost pressures “continue to be driven more by temporary purchase cost factors rather than more sustained wage and labour cost pressures.”
“How these forces evolve over the coming months remains a key uncertainty, with wages growth likely to strengthen as purchase costs ease,” the bank added rater hopefully.
The bank though sees further price pressures emerging because of the impact of the Russian invasion of Ukraine and the knock on impact on commodity prices.
“Purchase costs growth eased a little in February but remains at historically high levels, reflecting ongoing supply chain challenges – and these issues may be further compounded by events in Ukraine and sanctions against Russia,” Mr Oster said.
“Retail price growth strengthened in February, now above 2% in quarterly terms, suggesting that businesses are passing higher costs through to consumers,” said Mr Oster.
“While survey price measures differ from official measures in important ways, the results suggest another quarter of strong inflation is likely when March quarter CPI is released next month,” said Mr Oster.
