Australia: Business confidence at four-month high

Australia is dodging fallout from weak global growth. Photo / Tourism NSW

SYDNEY - Australian business confidence jumped last month to the highest level in four months, suggesting the economy is avoiding fallout from weaker global growth and increasing the central bank's scope to resume rate increases.

The confidence index rose to 11 points from 2 points in July, according to a National Australia Bank survey of more than 530 companies.

The first gain in business sentiment in six months adds to evidence including increased hiring and exports that support central bank Governor Glenn Stevens' view of an economy expected to strengthen after growing the most in three years last quarter.

National Australia Bank raised its forecast for economic growth in 2010 to 3.25 per cent from a previous prediction of 3 per cent.

"As the economy gathers speed in 2011, the case for rate rises will become more compelling," said Alan Oster, chief economist at National Australia in Melbourne.

The Reserve Bank of Australia will boost the benchmark lending rate by a quarter percentage point each quarter in 2011, bringing the rate to 5.5 per cent by the end of the year, he said.

There is also a risk the central bank could start raising rates again as early as November, Oster said.

The rebound in business sentiment was recorded amid uncertainty about the outcome of Australia's August 21 federal election. Prime Minister Julia Gillard won agreement last week to form a government.

Australia's gross domestic product surged 1.2 per cent in the second quarter, a report showed this month. The rise was the most since 2007, and confounded the median of 23 estimates in a survey for a 0.9 per cent increase.

National Australia's business conditions gauge, a measure of hiring, sales and profits, was unchanged at 5 points last month, the report showed.

"Conditions improved in manufacturing, recreation and construction, but deteriorated in mining, finance, transport, wholesale and retail," Oster said.

- BLOOMBERG