Business Conditions in Australia Falling Sharply: Next Crash Imminent?

With the recent release of the NAB Business Survey, now is a great time to take stock of the Australian economy. In a nutshell, the situation is not good. With regards to a crash, it could be a case of when, not if.

This is not simply doom mongering. Business conditions have now fallen by an amount not seen since the GFC, and are at their weakest since late 2014.

Digging into the details of the NAB Business survey

Cutting straight to the chase — mining looks to be the only sector not affected.

As the survey remarks:

The deterioration is evident across each component of the business conditions index. Both trading conditions (demand) and profitability indexes are now both below average, while employment conditions are just above their long-run average.

Australian Economy

Source: NAB

You can also see below that the mining sector is the only one above water in the last six months:

NAB Business Survey

Source: NAB

The success of mining, despite the negative wealth effect caused by a deflating housing bubble, is largely down to the recovery of iron ore. Things we have covered extensively here.

Retail has been savaged too — during a period in which it’s usually successful.

Australian Business Conditions

Source: NAB

What does this mean for you as investor?

For one, it means that mining may be a safe haven of sorts for your investments.

Jason Stevenson has a look at gold in his latest post, for instance.

Myself, I’m torn somewhere between the two.

Investing in the mining sector could have major short-term benefits as China edges closer towards stimulus — namely big time tax cuts.

Imagine that, a centrally-controlled economy cutting taxes.

The overall message from the NAB Business Survey however is one related to risk in your portfolio in the short- to mid-term.

In the short-term, the primary macro-risk element is the US–China trade war.

This could have serious implications for the Aussie Dollar, and intriguingly, mining sector margins.

We will keep you posted as the talks continue.

Regards,

Lachlann Tierney,
For Markets & Money


Lachlann Tierney is a writer for Markets & Money. He has lived and studied in the US, the UK, and Australia. With an MSc from London School of Economics (LSE) he brings a strong grasp of geopolitics and world affairs to his analysis. Lachlann is always on the lookout for the news that will give you an edge in tomorrow’s markets.


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