Australian firms remain upbeat

SYDNEY - Business confidence fell slightly in September after a surge over the past half year but firms remain upbeat about the future, a survey says.

The National Australia Bank (NAB) monthly business survey's measure of business confidence fell by four index points to plus 14 points in September.

NAB said the reading predated the first rate rise by the Reserve Bank of Australia (RBA) in 19 months last week, yet the measure was still above the longer average level.

The fall was mainly driven by declines in the manufacturing, wholesale and retail sectors, despite a strengthening in construction, NAB said in a report released yesterday.

NAB chief economist Alan Oster said a fall was inevitable after a decent surge in confidence during the past six months.

"Certainly our view was, and still is, that the readings for confidence are somewhat 'unrealistic' - especially when compared to actual business conditions.

"In that context, the four-point fall in confidence in September is relatively moderate."

NAB's measure of business conditions fell one index point to plus three points, which was just below long-run average readings.

Business conditions edged lower on weaker profits and sales, but this was offset by a stronger labour market.

There was an encouraging note in the measure for forward orders - which rose nine index points to plus seven points in September, the best reading since November 2007.

"That level is above longer-term averages and reinforces the point that the economy continues to experience strong demand," Oster said.

NAB left its forecasts for economic growth unchanged, with the bank predicting Australian gross domestic product (GDP) to be flat in the second half of 2009 and to expand by 0.6 per cent in calendar 2009.

NAB also forecast GDP to grow by 2.1 per cent in calendar 2010, or by 3 per cent on a through-the-year basis.

"These forecasts appear broadly consistent with the RBA's return to 'trend' growth during 2010," NABsaid.

NAB also expects unemployment to peak at 6.7 per cent in mid to late 2010, with core inflation at around 2 per cent, on an annualised basis.

Australia's jobless rate fell by 0.1 percentage points to 5.7 per cent in September, the latest official data show.

Oster said he expected more rate rises by the central bank this year before it paused to evaluate the economic data for a reading on the progress of the recovery.

"Having started a month earlier than we expected [in raising rates], we see no reason why they will not deliver another 25 points in each of the next two meetings - bringing the cash rate up to 3.75 per cent by year end."

The NAB survey of more than 400 firms from the non-farm sector was conducted between September 21 and 25.

- AAP