At the same time, NAB’s closely watched survey of business confidence suggests that companies are also facing a harsher operating environment.
The head of the Reserve Bank of Australia, Philip Lowe, has already responded to the growing economic risks both in the domestic economy and offshore by shifting to a neutral policy outlook.
“Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios”, he said in a speech in Sydney last month. “Today, the probabilities appear to be more evenly balanced.”
The Reserve Bank’s step back from its tightening bias mirrors the increasingly dovish tilt of other leading central banks, as they grapple with what European Central Bank boss Mario Draghi has called the “pervasive uncertainty” that has undermined confidence and led to a rapidly worsening outlook for global growth.
Less than three months after it phased out its massive bond-buying program, the ECB last week promised to hold interest rates low for longer, and unveiled a new offer of cheap long-term loans for banks.
Change of tune
The US central bank has also changed its tune on interest rate hikes, with the head of the US Federal Reserve, Jerome Powell, saying that the case for raising rates had “weakened somewhat”.
Figures released on Friday showed that US employment growth almost stalled in February, fuelling fears that recent signs of weakness in the world’s largest economy might turn into a broader and more persistent slowdown.
Chinese data for the same month showed a steep decline in trade, with exports tumbling the most in three years, while imports fell for a third straight month.
At the same time, the local economy faces the challenge of rapidly cooling housing markets, with some analysts tipping total peak-to-trough declines of 25 per cent for both Sydney and Melbourne property prices.
But in the lead-up to the NSW election this month, neither Premier Gladys Berejiklian nor Labor’s Michael Daley have warned that the state’s revenues are about to be hit by a huge drop in stamp duty receipts which will likely force them to abandon some of their big-spending promises.
Their counterparts in national politics are little better.
Iron ore prices surged to four-and-a-half year highs of close to $US100 a tonne last month, after the Brazilian miner Vale suspended 51 million tonnes of production in the wake of January’s deadly dam collapse. Vale is the world’s biggest supplier of the steel-making ingredient.
The surge in the iron ore price has not only boosted revenues of local iron ore producers, such as BHP, Rio Tinto and Fortescue, it’s also lifted how much corporate taxes and royalties they pay.
Although this spike in iron ore prices has improved the country’s budgetary bottom line, it would be folly to expect prices to remain so high, especially as BHP and Rio are already gearing up to increase production.
Already, economists are warning that slowing global growth will crimp government revenues, preventing the much-vaunted return to a budget surplus next year.
Meanwhile, there are growing concerns that the resolve of Opposition Leader Bill Shorten to make the next election a referendum about wages could help lift the spirits of subdued consumers.
But the prospect of big increases in the minimum wage and the restoration of weekend penalty rates is likely to weigh on small business confidence.
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