Business confidence hits 7-year high

SYDNEY - Australian firms continue to be upbeat about the economy with business confidence rising to a seven-and-a-half year high in November, a survey shows.

The National Australia Bank's (NAB) latest monthly business survey shows business confidence rose three index points to plus-19 in November, its highest level since May 2002.

The confidence of firms in the mining, retail and transport sectors rose in November, while the construction and wholesaling industries weakened, the survey found.

Business conditions dipped two index points to plus-10 in November, with trading conditions unchanged at plus-15 and profits down two points to plus-11.

NAB chief economist Alan Oster said the local economy continued to show significant momentum, with a six index point rise in forward orders to a two-year high of plus-nine points underpinning the strength in confidence.

"Confidence also continues to build and forward orders are now at their highest level since late 2007," Oster said yesterday. "All of this is truly a remarkable outcome and one that continues to surprise."

While business conditions eased a little in November, the index remained above long-run averages, Oster said.

NAB has upwardly revised its forecasts for economic growth and unemployment in Australia due to the ongoing confidence of businesses.

Australian gross domestic product (GDP) is now forecast to be 1.25 per cent in calendar 2009, up from a previous forecast of 1 per cent, and the economy is expected to grow by 2.75 per cent in 2010, up from 2.5 per cent.

According to the latest official figures, GDP grew by 0.6 per cent in the year to June 30. The September quarter data are due later this month.

"While it is clear that a good deal of growth was brought forward by the fiscal package, the economy - as reflected in the survey results - still has substantial momentum in the fourth quarter with high levels of confidence and forward orders," Oster said.

"The end of de-stocking and increased capacity utilisation also points to a broadening in the recovery process."

The rate of unemployment is now forecast to peak at 6.2 per cent in mid-2010, compared to a previous estimate of 6.5 per cent. Australia's jobless rate rose 0.1 percentage point to 5.8 per cent in October, the latest official data show.

"The stronger than previously expected activity forecasts feeds into the labour market - which has also benefited by the more flexible use of labour hours (that is, employers have opted to reduce hours rather than retrenching)," Oster said.

"But while we may be passing the stage of active job cuts, employment growth is likely to be very moderate."

NAB has forecast the Reserve Bank of Australia (RBA) to lift the overnight cash rate by 25 basis points in both February and March of 2010, to 4.25 per cent.

"Thereafter, we continue to expect the RBA to pause for around six months before delivering progressive [rises] until rates are back to neutral," he said.

"That, however, very much depends on inflation slowing as we and the RBA expect, together with growth not accelerating even further in late 2009/early 2010."

- AAP