On the other hand, export volumes benefit from increased capacity and a lower Australian dollar partly offset by some moderation, but sustained trading partner growth during 2006-2007.
Businesses continue to look at the future with some skepticism. Companies again report weaker employment outcomes in December, while capital spending also weakened somewhat. The official cash rate is even more firmly on hold for the foreseeable future.
Business concerns about the potential for a sharp fall in future activity have continued to ease.
Business appears increasingly concerned that further weakness is in prospect. The Reserve Bank is very much on hold, weighing the higher inflation reality against the prospect of further slowing in domestic demand and a mild deterioration in the labor market.
The pace of economic activity is continuing to moderate. The Reserve Bank is very much on hold, watching both the inflation outlook and domestic demand over the remainder of 2005 and well into next year.
Overall, we still see the official cash rate being increased by around 1.25 percent in total, bring the rate back to around 5.5 percent by mid/early 2003.
While the Australian economy continues to report sub-trend growth, the December results reinforce the point that it is still performing reasonably well. Conditions improved in December, driven by stronger-than-expected trading and profitability.
This says to me that interest rates are firmly on hold. This economy is slowing down and there may be a bit more weakness to come.
While the RBA might engage in occasional bouts of jawboning, we see little prospect of the RBA moving in either direction for some considerable period. That, indeed, was the main message out of yesterday's monetary policy statement.
The story is one of continuing boom conditions in mining and very strong nonresidential construction activity. The Reserve Bank is still very much on hold, watching both the inflation outlook and domestic demand.
On transport, it is one of the few sectors that has continued to deteriorate through the quarter, no doubt reflecting the impact of higher oil prices on costs and profitability.
Against that, cost pressures and more specifically oil prices remain a concern, as does the availability of suitable labor.
Despite improvements in confidence and still reasonable sales, the results suggest that business is still reluctant to increase hiring.
There was continuing strength in mining, equipment manufacturing, nonresidential construction and utilities, ... Against that, residential construction, parts of agriculture and both wholesale and retail report poor and falling business conditions.
The Reserve Bank will continue to monitor higher short-term inflation risks from oil against slowing economic activity. While the bank might engage in occasional bouts of jawboning, we see little prospect of rates moving in either direction for some considerable period.
Confidence has been getting weaker for some months and trading conditions have weakened a bit in the latest survey. They could weaken more in the short term, but when you look at the medium term, companies are still quite optimistic.
It needs to be stressed that the case (for a rate hike) is not about current levels of wage/price pressures, but where they might be headed in an environment of an economy operating at high levels of capacity and in a very tight labor market.
Oil-sensitive sectors continue to weaken, led down by retailing, wholesaling and transport,
The near-term inflation outlook will cause the Reserve Bank some short term concern,
In summary, the survey points to a significant pick-up in economic growth in the first quarter of 2006.
The deterioration in agribusiness contrasts starkly with the ongoing strength in the non-farm business sector as a whole.
