Welcome to the latest edition of Business Matters, your quarterly update from the P&N Business Banking team.
It has been a busy few months since our last edition following the Federal Budget, with much activity in the market, both domestically and globally.
We have seen a number of large western economies move into an interest rate easing cycle, with NZ, the UK, Canada, and a number of other country’s Central Banks starting to reduce interest rates. The latest economic data suggests possible interest rate reductions in Australia in early calendar 2025.
The economic landscape
Highlights from the latest RBA Economic Update (August 2024) include:
- Outlook for growth has been upgraded due to stronger than forecast public demand, as well as a pick-up in household spending as real incomes rise. This is expected to be partially offset by stronger growth in imports and weaker growth in housing construction.
- The labour market is expected to continue easing gradually but remain tight, with strong participation rates and average hours worked proving resilient. Job vacancies have come down, but they are still higher than before the pandemic.
- The unemployment rate is expected to keep slowly rising until early 2025, but the expected recovery in GDP growth should continue to support demand for labour.
- Inflation is expected to take longer to return to target, with demand for goods and services remaining higher than supply. Headline inflation is expected to come down temporarily, due to cost of living support, before rising again when that support ends, with headline inflation expected to track towards the midpoint of the target in 2026.
- Wage growth remains high at 4.1% despite productivity growth remaining weak.
- The cash rate remains at 4.35% for now, with most economists predicting a decrease in early calendar 2025 as the RBA remains focused on ensuring inflation returns sustainably to the target range.
What this means for businesses
The latest CreditorWatch (business credit rating agency) update on activity in the business market revealed the CPI monthly figure fell to 3.5% over the year to July 2024, down from 3.8% in June. This figure reflects a continued slowing demand for discretionary goods and services, and an economy still on track for a ‘soft landing’ out of this monetary cycle.
That said, there are many subtle signs of growing distress among mortgage holders and businesses in Australia. House listings are rising dramatically, particularly in wealthier areas of Sydney and Melbourne, and CreditorWatch’s July Business Risk Index revealed the average of invoices held by businesses is half of what it was this time last year.
The unemployment rate will be watched closely by the RBA and, while the market is suggesting a rate cut in early 2025, if there is any indication that unemployment is rising faster than forecasted the RBA may follow overseas central banks and cut the cash rate before the year is out.
With the challenges facing the business environment and the current economic conditions, we are aware many businesses may be facing financial hardship. I encourage you to reach out to our relationship managers as soon as possible so we can work with you through these challenging times.
Other issues impacting businesses
Cyber security and scam awareness continues to be a topical issue for businesses. The prevalence of threat actors impacting businesses means it’s more important than ever to remain vigilant for potential scams. You can find important information on common scams and how to avoid them on our website.
Given the challenges presented by climate change and the need to be prepared, P&N has developed a Climate Action Plan, which articulates our commitment to reducing the impact of our operations on the climate. This includes helping our customers and their communities transition to lower emissions, including in their homes and businesses. This is an area where we will increase our focus going forward and adapt and refine over time to ensure our commitments remain aligned with best practice and are focused on you, our customers.
As always, the P&N Business Banking team is here to support you and your business every step of the way. I encourage you to contact us if you would like to discuss any area of your business.
Sincerely,
Jacqueline Ryan
Chief Business Banking Officer