A leading business group has warned it will take more than another interest rate cut to lift activity among firms and prevent a further rise in unemployment.
Australian Chamber of Commerce and Industry (ACCI) acting chief economist Burchell Wilson believes business confidence has been trashed by federal policy instability over recent years and until that improves there is going to be a lack of willingness to invest and employ.
“A further reduction in the cash rate would certainly be welcomed but it’s not the main game. The main game is business confidence,” Burchell told reporters in Canberra on Monday.
ACCI’s latest survey of investor confidence showed some positive trends, such as for sales and profitability, but both were recovering from extremely weak levels.
The survey’s business conditions index rose to 52.6 points in the December quarter from 51.1 points in the previous three months, which had been the first expansionary reading above 50 in almost three years.
However, business expectations index also eased slightly to 55.5 points from 56.5 points.
Burchell said the depreciation in the Australian dollar will have helped business conditions to a degree but firms are still struggling.
“It is also telling us that the unemployment rate is expected to rise over the next 12 months,” he said.
The Australian dollar slipped to a fresh three-and-a-half-year low towards 87.50 US cents, having been in a gradual decline since last Thursday’s weak labour force data for December.
The federal government in its mid-year budget review, released just before Christmas, forecast the unemployment rate rising to six per cent by June, up from 5.8 per cent as of the end of last year.
While the recent jobs data has encouraged thoughts of an additional cut in the Reserve Bank of Australia’s (RBA) cash rate, TD Securities head of Asia-Pacific research Annette Beacher doubts it will happen.
“We remain of the view that the next move remains up for the cash rate, although not until the final months of the year,” she said.
She said other recent data has shown that the record low 2.5 per cent cash rate is stimulating consumer spending, mortgage demand and house prices.
At the same time, the TD Securities-Melbourne Institute inflation gauge released on Monday jumped 0.7 per cent in December.
This lifted the annual rate to 2.7 per cent from 2.4 per cent and into the top half of the central bank’s two to three per cent inflation target band.
Official inflation data are released on Wednesday.
An AAP survey of economists expect the consumer price index to show a more subdued 0.5 per cent increase for the December quarter, for an annual rate of 2.5 per cent.
Underlying measures of inflation are expected to rise 0.6 per cent on average for 2.3 per cent annually.
The RBA will hold it first board meeting of the year on February 4.
