- Business conditions weakened notably in the March quarter;
- That weakness was across states and most sectors;
- Worse economic data is yet to come;
- The RBA and the Government will do whatever it can to limit the economic fallout.
When it is over COVID-19 will end up having one of the largest economic impacts (both domestically and globally) since at least the Second World War. A range of innovative indicators (pollution, traffic, restaurant bookings) have emerged to get a real-time feel for how big that impact will be and which sectors will feel the pain most intensely.
These indicators are useful in gauging the size of the problem. But to understand how the overall economy is performing we still need to wait for the official numbers released by the ABS. Or information provided from long-standing consumer and business surveys. The NAB quarterly survey is one of (if not the) best survey of firms’ views of economic conditions. It began in 1989, so has the advantage of including data the last time the Australian economy went into recession.
We recently received an update as to how firms viewed conditions in the March quarter. The survey was completed in the first half of the month so does not include the most stringent of the social-distancing policies subsequently introduced.
Firms highlighted that conditions were slowing in the March quarter, although they were viewed to be not as weak as 2011-13 when the global economy was struggling with the European debt crisis (let alone conditions seen during the GFC or the 1990’s recession). Exporters thought that things were particularly tough, a result of the Chinese economy being shut for half of the March quarter. Hiring intentions were declining. Capacity utilisation was seen to be above average.
Firms noted that forward orders were drying up. The last time that order books had been thinner was during the GFC and 1990’s recession. A lack of orders remained company’s biggest worry although the ability to find workers with the right skills remained a headache for a number of firms.
All States broadly suffered the same decline of conditions in the March quarter (the smallest decline happened in Queensland partly because conditions were already lower than elsewhere). Conditions were viewed to be weakest in Tasmania, WA and Queensland, the three states with the biggest exposures to the export sectors.
Virtually all sectors reported a weakening of activity in the March quarter. The biggest drop was in manufacturing, exacerbated by supply-chain problems as a result of the shutdown of the Chinese economy. The massive amount of financial market volatility impacted the finance sector. Recreation companies reported the strongest business conditions but that would have changed by the end of March.
Interestingly, the one sector that had a better March quarter was retail. Stocking up on toilet rolls, freezers and computer screens put a smile on many retailer’s faces. Car yards and clothing shops didn’t find conditions as helpful.
Economic conditions are changing so quickly that even data from last month looks very out of date. But what it does say is that the March quarter wasn’t a great one for the economy. And the data will just be getting worse for the next few weeks.
The economic times are tough. The Government and the RBA will do whatever they can to limit the fallout. As yet we don’t know the depth or the length of the crisis. All we do know is that someday it will end.
We live in interesting times!
Peter Munckton - Chief Economist