Research Team at NAB, suggests that the Australian economy appears to be performing better than many had expected, and this month’s business survey gives no signs that this is wavering. Key Quotes “The NAB Business Survey showed a notable improvement in business conditions during February, jumping to +8 points, more than unwinding the decline from last month, which was primarily driven by Australia’s mining states. Conditions remain particularly robust in service based industries, which are leading the way in what has proven to be a resilient recovery in the non-mining economy. All three components of conditions (trade, profit and employment) improved during the month, and it was particularly encouraging to see employment move back into positive territory after showing mild signs of faltering recently – although it still suggests softer employment growth than the official labour market statistics. Forward indicat ors were more positive as well. Capacity utilisation, which provides a useful measure of the underlying health of the economy, jumped to 81.5% in February – its highest level since early 2012, and is above long-run average levels. This is consistent with a pick up in the capex index, which hit its highest reading in nine months. Forward orders were also stronger, lifting to well above average levels, suggesting a pick up in growth momentum in the near term. Despite the lift in conditions and some apparent respite in financial markets, business confidence simply held steady at the subdued – albeit positive – levels seen in recent months. Across industries confidence remains quite mixed, although all but two (mining and wholesale) were positive . Solid outcomes in the NAB Business Survey in late 2015 (and industry differences) were confirmed by the Q4 National Accounts – and hence their strength was not a surprise to us. The latest Survey confirms continuing non-mining momentum in early 2016. The service sectors have very much stepped up and are now driving an impressive rebound in non-mining domestic demand. In contrast, the outlook for the global economy remains downbeat and there is still much fear of contagion. Against that the key drivers of local strength remain intact (especially low rates and a more competitive currency) and hence we have not changed our view of the Australian economy outlook – and especially continuing non-mining strength. That means monetary policy should remain on hold for an extended period (rather than the market expectation for another cut by year end). However, much depends on global uncertainties and whether global contagion ultimately weakens momentum in the domestic non-mining sector – and hence unemployment. AUD strength is another risk.” For more information, read our latest forex news.