Australian business confidence slides to 4-year low

SYDNEY - Australian business confidence has hit a four-year low and is expected to continue falling despite recent stability in business conditions.

National Australia Bank's (NAB) quarterly business survey found business conditions moderated in the June quarter with its conditions index unchanged at 14 points from the March quarter, seasonally adjusted. This compares with a recent peak of 20 points in the June quarter 2004.

However, the business confidence index - the expectation of business conditions in the future - fell five index points to a negative reading of 4.2 points in seasonally adjusted terms in the quarter.

NAB chief economist Alan Oster said business expectations continued to deteriorate.

Looking ahead to the September quarter, business confidence also retreated by five points to a reading of 2.9 index points.

"Investment intentions have also been marginally scaled back," Oster said.

"Interestingly it also appears that the expected deterioration in trading conditions and new orders is in the domestic part of the economy."

RBC Capital Markets senior economist Michael Every said the confidence index levels were at a four-year low.

"Lower consumer spending and home construction are clearly being felt on the domestic front, but exporters remain optimistic," he said.

Oster said the business conditions result was underpinned by a strengthening labour market.

"The main message from the more comprehensive quarterly business survey is to confirm that business conditions overall appear to have stabilised in the June quarter following falls in the previous quarters," he said.

But the overall sources of business conditions in the quarter remained unclear.

"Possible explanations include expectational effects from announcements of budget tax cuts, less fear about rising interest rates, changed timing of retail sales and perhaps the lower Australian dollar," Oster said.

"We expect domestic demand to slow from 3.5 per cent currently to around 2.25 per cent by end 2005, before recovering to run at about three per cent through 2006," he said.

The proportion of respondents expecting a further Reserve Bank of Australia interest rate rise fell sharply to 51 per cent in the June quarter from 87 per cent in the March quarter.

- AAP