Australia business conditions jump sharply in December

People are silhouetted against the Sydney Opera House at sunset in Australia.
People are silhouetted against the Sydney Opera House at sunset in Australia.PHOTO: REUTERS

SYDNEY (REUTERS) - Australian business conditions recovered strongly in December as firms reported a marked pick up in sales and profits, the latest in a string of surveys pointing to gathering momentum going into the new year.

National Australia Bank's monthly survey of nearly 400 firms showed its index of business conditions jumped 5 points to +11 in December. That took it back to the highs seen in mid-2016 and well above the long run average of +5.

The survey's measure of business confidence held steady at +6 in December.

Its index of sales doubled to +20 for the month, even though the retail sector remained weak overall, while the measure of profits climbed 8 points to +14. A healthy 5 point rise in forward orders seemed to augur well for further growth, while employment held steady in the month.

The biggest improvement in conditions came in Western Australia, a sign activity might be stabilising in the hard-hit mining state.

Riki Polygenis, NAB's head of Australian economics, was cautious on reading too much into one month's figures reflecting in part the bank's view that a slowdown in the economy will force two more cuts in interest rates later in 2017.

"A spike in business conditions could point to a stronger outlook, but we remain cautious given that some aspects of the survey suggest the rebound might prove to be temporary," said Polygenis.

She noted there had yet to be much evidence of a recovery in business investment outside of mining.

The Reserve Bank of Australia (RBA) has recently been optimistic on the economic outlook and played down the need for further easing, having already cut rates in August and May.

Several other surveys of businesses from the Australia Industry Group had also found a marked improvement in activity in December with manufacturing at a five-month peak.