Businesses were expecting to hire more workers and invest more in the March quarter, meaning the Reserve Bank will likely sit on the sidelines in the medium term, National Australia Bank says.
The NAB quarterly business survey released on Thursday showed business conditions improved and confidence was flat, but above long-run average, in the three months to March 31.
NAB chief economist Alan Oster said the improvement in conditions was more modest than that shown in the same survey for the month of March, however leading indicators were broadly positive.
He said the most promising aspect of the survey was that businesses' employment expectations in both the near and medium-terms hit multi-year highs with firms indicating it has become harder to find suitable labour.
Mr Oster also pointed out that a recovery in forward orders in the quarter could flow through to a rise businesses' capital expenditure, or investment, plans.
"That all points to a tighter labour market than the ABS unemployment rate is currently suggesting," he said in a statement.
"Similarly, capex plans (next 12 months) reached their highest level since 2011."
However, Mr Oster expects the Reserve Bank to stay on the sidelines despite the strong activity indicators, as pressure on consumer prices are likely to remain weak.
He also suggested the RBA would likely avoid unsettling the economy if there were short-term disruptions from Cyclone Debbie or in case of long-term risks like a potential downturn in housing construction or liquefied natural gas exports, both in 2018.
"That, combined with the lack of inflationary pressures in the Survey suggests the RBA will remain on the sidelines for an extended period," Mr Oster said.
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