Australia’s business sentiment eases in January on weak domestic conditions and market volatility

The NAB business survey has reported that Australia's business conditions have eased in early 2016. The index dropped to +5 in January from +6 in December and +10 in November. However, the January's reading is still more than the long-run average of +1.

Meanwhile business sentiment also eased to below trend, dropping from +5 in November to +2 in December. It remained unchanged at +2 in January. This is lower than the long-run average for this series of +5.  The January's business sentiment was in line with that of the consumers. The Westpac-MI Consumer Sentiment was at 97.3 in January.

Weakness in domestic conditions and reaction to financial market instability globally has led to easing of business sentiment. Until now, business confidence has been relatively resilient to global developments.

Business conditions in H1 2015 trended higher and reached around +10 through June to November. The conditions have weakened in recent time as commodity prices globally have declined further, impacting the resource sector and the mining states. Furthermore, housing markets in Melbourne and Sydney have eased after a tightening of lending standards, particularly for investors in H2 2015.

According to the business survey, the consumer sectors have also witnessed certain weakness. Retail is likely to have fallen to -4 in the beginning of 2016. Forward orders dropped to +1 in January from +4, while construction orders also declined.