Latest / Best of Business / Paul Bloxham: HSBC chief economist on Australian business confidence dropping to Covid-era low

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Paul Bloxham: HSBC chief economist on Australian business confidence dropping to Covid-era low · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk zed B.
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  Speaker 2: Now. Australian business and consumer sentiment has fallen to COVID
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  Speaker 2: pandemic lows. HSBC's chief economist Paul Bloxham is with us
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  Speaker 2: on this.
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  Speaker 3: High Paul good aim.
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  Speaker 2: I mean we're talking about two different surveys here, one
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  Speaker 2: dealing with consumer one dealing with business sentiment, but both
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  Speaker 2: have crashed, haven't they.
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  Speaker 3: That's right. So the consumer sentiment survey is for April
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  Speaker 3: and it fell really sharply and got to its lowest
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  Speaker 3: level since I think twenty twenty three. Although that's the
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  Speaker 3: sort of that's you know, the pandemic and the previous
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  Speaker 3: levels times it has been at those levels have been
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  Speaker 3: the global financial crisis and the nineteen nineties recession, so
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  Speaker 3: we took them at quite low levels. And the other
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  Speaker 3: survey that came out today is the business one and
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  Speaker 3: that fell as well, quite sharply, lowest level in six years,
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  Speaker 3: and it's for March. So yeah, some fairly clear signals
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  Speaker 3: that the Australian economy is facing some tougher times that
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  Speaker 3: we think. It's sort of two shocks. It's the fact that,
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  Speaker 3: of course energy prices have gone a few prices have
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  Speaker 3: gone up sharply on the back of the Middle East
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  Speaker 3: conflict and its impact, but also the fact that the
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  Speaker 3: RBA has been lifting interest rates. We've had two interest
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  Speaker 3: rate rises from them back to back in February and
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  Speaker 3: in March. And I think if you combine those two forces,
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  Speaker 3: they are cutting pretty heavily into household disposable incomes. And
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  Speaker 3: we think that's going to mean that consumers are going
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  Speaker 3: to pull back. And I think these are the first
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  Speaker 3: signs of that flowing through to some of the sort
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  Speaker 3: of indicators that we get for the economy.
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  Speaker 2: Can we untangle in these numbers pull how much of
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  Speaker 2: this is based on what has already happened, like the
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  Speaker 2: prices that have already gone up, and how much this
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  Speaker 2: is based on perhaps fear or clarity about how bad
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  Speaker 2: this could be.
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  Speaker 3: It's difficult to do that with it, you know, particularly
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  Speaker 3: with these indicators. But I mean, I think the thing
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  Speaker 3: you can say with the consumer sentiment one is that
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  Speaker 3: it's both March and April, so it's a later reading.
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  Speaker 3: So it's got a lot of what's already happened in it.
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  Speaker 3: I'd say the Business survey is an earlier reading because
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  Speaker 3: actually it's for March. It's not really sort of that.
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  Speaker 3: A lot of the bad news that's come from offshore
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  Speaker 3: played has played out through March and into early April,
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  Speaker 3: so I think there's probably still more downside yet to
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  Speaker 3: come on the business front. I think this is confidence indicator,
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  Speaker 3: which is what we keep track of, is that's the
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  Speaker 3: one that's fallen really sharply. There's a conditions index as
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  Speaker 3: well that actually held up okay in March, but it
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  Speaker 3: turns out, you know, that confidence tends to lead the conditions.
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  Speaker 3: If confidence falls, it's then that conditions start to weaken.
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  Speaker 3: So I would say we're not out of the woods yet.
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  Speaker 3: There's still more weakness to come. And the way we're
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  Speaker 3: thinking about this is this is sort of supports the
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  Speaker 3: view that we've got that we think GDP will probably
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  Speaker 3: contract in Australia in the second quarter. So this is
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  Speaker 3: the quarter we're currently in, and this is the sort
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  Speaker 3: of leading or early indications that that's likely.
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  Speaker 2: Have we had confidence in this country full comparably in
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  Speaker 2: New Zealand.
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  Speaker 3: No, New Zealand looks a bit better. And I've been
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  Speaker 3: saying this for a few weeks now that I think
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  Speaker 3: New Zealand is in a bit better spot altogether for
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  Speaker 3: dealing with the shock that you're that we're now facing.
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  Speaker 3: The PMI indicators haven't fallen as sharply in New Zealand
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  Speaker 3: as as you've seen in these confidence indicators in Australia.
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  Speaker 3: And I think the other thing to keep in mind is,
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  Speaker 3: you know, having had a weaker economy for a period
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  Speaker 3: of the last three years in New Zealand, that's broad
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  Speaker 3: inflation down such that inflation's already come down a bit
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  Speaker 3: and it's not far off where the Arbenz needs it
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  Speaker 3: to be. And of course now we're facing another inflation shock,
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  Speaker 3: but that's a better starting point than where we are
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  Speaker 3: in Australia, where inflation actually has been surging over the
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  Speaker 3: past over the second half of last year and is
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  Speaker 3: already too high even before we account for the fact
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  Speaker 3: that now we've got another step up in petrol prices
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  Speaker 3: and the cost base. So New Zealand, the arbyen Z
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  Speaker 3: is in a bit better spot, I think than the RBA.
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  Speaker 3: It may may not be sort of that comforting the
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  Speaker 3: reason you're there, because actually conditions have been weak for
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  Speaker 3: the past three years. But it is a better spot
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  Speaker 3: to be in to have a bit of spere capacity
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  Speaker 3: in your economy and have inflation that's a bit lower
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  Speaker 3: when you face another global inflation shop than what's happening
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  Speaker 3: here in Australia, where inflation is already too high.
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  Speaker 2: Yeah, Now this blockade that's happened, is this forcing you
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  Speaker 2: to reconsider any of your forecasts.
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  Speaker 3: Look, we're watching these developments very closely. I mean, every
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  Speaker 3: day there's something new to keep in mind. I think
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  Speaker 3: the main thing that we would take you from this
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  Speaker 3: is at the moment, the key thing to watch for
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  Speaker 3: is when does the flow of energy start again? When
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  Speaker 3: does the strait of hormas really open up? And when
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  Speaker 3: do we start to get the ships coming through. And
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  Speaker 3: the longer that goes on, the longer it goes on,
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  Speaker 3: the more disruptive it's likely to be. I think there's
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  Speaker 3: still quite a bit of a lag between sort of
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  Speaker 3: the fact that it's been closed now for about six
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  Speaker 3: weeks and it hasn't and the actual impact it's going
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  Speaker 3: to have on energy markets. There's a lag between those
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  Speaker 3: things because if you think about it, the ships that
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  Speaker 3: had left six weeks ago are now arriving at refineries. Well,
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  Speaker 3: there won't be another set of ships to follow it necessarily,
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  Speaker 3: and so I think this is going to play out
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  Speaker 3: over the next few months. And as I say, the
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  Speaker 3: longer it goes on, the more disruptive it's likely to be,
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  Speaker 3: the larger downside risk it creates to the global growth
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  Speaker 3: and to local growth as well. So it's obviously not
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  Speaker 3: over yet because the strait is still not open.
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  Speaker 2: Yeah, too right, Paul, Thank you as always appreciate it.
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  Speaker 2: We'll talk to you next week. Paul Bloxam, HSB Chief Economist.
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