Daily Commentary BY THE CURVE TEAM –

Business Conditions Fade, China Slowing

15th of August, 2018

The latest business survey for July made for interesting reading with the overall conditions index slowing while the subcomponents were mixed. The Chinese economy is also showing signs of slowing according to the latest monthly dump of activity indicators.

After recording a record run over the later stages of 2017 and the first half of 2018, business conditions have eased back over the past couple of months. Trading conditions and profitability have drifted back from record highs but the positive was that these declines were offset by a bounce back in the employment index.

To put the outcome in context, the business conditions index at 12, while below the lofty highs of the past 6 to 9 months, is still well above the long run average. The employment index at 10 also points to continued strong employment growth. The overall trend is worth keeping an eye on through.

Offshore and the Chinese economy is showing further signs of slowing and that the stimulus efforts by Chinese officials are needed. The monthly data dump which includes retail sales, industrial production and fixed asset investment, all missed expectations.

The softening of the business survey along with the trend in the Chinese data will have the RBA on notice. However if employment growth holds up over the months ahead, they we should expect little change to the RBA central outlook.

David Flanagan

Director - Interest Rate Markets