Australia likely to escape recession: NAB economist

Commenting on the October NAB Business Conditions survey, Alan Oster said while consumption will soften into 2023 as interest rates and inflation start to bite, Australia’s strong labour market should protect it from dipping into recession.

The survey for October found that business conditions remained strong but business confidence weakened in October and revealed that although trading conditions and employment eased, they remain high alongside ongoing high levels of capacity utilisation.

Conditions remained strong across industries and states and while activity indicators remained strong, business confidence eased in the month to zero index points below the long-run average.

The drop in confidence aligned with some softening in forward orders and reflected an increasingly negative global economic outlook and ongoing rate rises domestically.

The slowing in purchase costs growth seen in September was partly reversed, with costs up 4.1 per cent in quarterly terms, but labour cost growth continued to moderate after spiking in July, likely related to the recent minimum wage decision.

Final product prices grew 2.0 per cent with retail price growth up to 3.0 per cent, indicating the strong inflation seen in Q3 will likely continue into Q4.

NAB chief economist Mr Oster said consumers continued to spend despite headwinds from inflation and interest rates and that run of strength looks to have carried on into October.

“Conditions remain fairly robust across the states and across sectors,” said Mr Oster. “There was something of a correction in wholesale and retail conditions this month from very high readings in the previous survey but they both remain at very strong levels, as do conditions in mining, transport & utilities, and recreation & personal services.

“Despite the strength in conditions, confidence has been falling for several months as headwinds have weighed on the outlook for the global economy and Australia.

“Overall, the survey indicates demand remained strong through October but highlights that headwinds are beginning to weigh on businesses’ expectations for the future.

“We do share these concerns with consumption expected to soften materially in 2023 as inflation and higher interest rates take a toll. Still, a strong labour market will be an ongoing source of support for households and for now, we don’t foresee a recession for Australia.”