By Rudi Filapek-Vandyck

National Australia Bank reports its monthly survey has revealed that overall conditions for businesses throughout Australia have improved slightly in November. The survey results are consistent with an economy growing around trend.

According to the survey, services sectors (ex. finance) and retail are performing better, while business confidence overall is relatively stable ? despite European concerns. NAB economists have revised up their GDP estimate on mining and consumer strength (more about this later).

Business conditions edged higher in November, after softening a little in the previous month. With the exception of trading conditions, all of the survey indicators improved in the month, with increases in forward orders, stocks, employment and capacity utilisation suggestive of improved economic activity, report economists at NAB. They add the survey's activity readings over the December quarter to date are broadly consistent with underlying demand growth of around 3.50-3.75% and GDP (ex. coal) growth of around 3.25-3.50% in the December quarter (6-monthly annualised rate).

Business confidence was unchanged in November, remaining below its long-term average, note the economists.

The November survey also showed business conditions remained mixed by industry. The services sectors (outside finance) all reported better activity in the month. Mining, transport & utilities and retail conditions were also noticeably stronger. In contrast, conditions deteriorated heavily in construction in November, while manufacturing conditions also deteriorated in the month. NAB states conditions were "worryingly weak" in both sectors.

Labour cost growth ticked up in November, consistent with an improvement in employment conditions in the month. Final product prices rose in the month, but retail prices remained broadly flat.

Economists at NAB also report they have made various changes to forecasts. The continuing financial crisis in the euro-zone is seriously damaging European business confidence and affecting economic activity. As a result, NAB is now expecting a deeper recession in that region with spill-over effects around the world (particularly to the UK, where forecasts have also been lowered).

In addition, the big emerging market economies are also slowing as earlier policy tightening takes effect in China, India and Brazil. Overall, NAB economists have cut global growth forecast to 3.25% for 2012, a below-trend performance crucially reliant on the contributions from the US, China and India.

Australian national accounts data heralded the start of the long-awaited mining investment boom, while consumption growth remains firm; NAB sees these components (in particular) supporting further growth in the Australian economy in the medium term. NAB's GDP forecasts have been strengthened to reflect stronger consumption and mining investment growth.

NAB economists state they are generally more bullish on near-term growth than the Commonwealth Treasury and the RBA's latest forecasts, anticipating year-average growth of 2.1% this year and around 4.50% in 2012. The economists see downside risks to near term inflation (2% by mid 2012), but expect above target inflation to re-emerge in 2013, consistent with the stronger growth profile.