Business confidence has fallen sharply to levels last seen in 2009 when the economy was struggling to emerge from the global financial crisis (GFC).
National Australia Bank, which surveyed the businesses, said the weak results in August came at a time when global uncertainty was high as sharemarkets slumped and debt problems in Europe appeared to get worse.
“The recent run of softer local economic data and the uncertain path for domestic interest rates are also likely to have influenced the weaker confidence outcome in the month,” NAB’s economists said in a note accompanying the results on Tuesday.
The survey showed that business confidence dropped 10 points to be minus eight in August, the lowest since the second quarter of 2009 and the turmoil of the GFC.
In contrast, business conditions were only a little weaker in August, declining two points to minus three index points, as businesses reported much better conditions than reflected in confidence readings.
“Conditions are, at present, indicative of an economy, overall, growing at a touch below trend – and not nearly as badly as during the GFC or, indeed, earlier this year during the Queensland floods,” NAB said.
The survey also highlighted the multi-speed nature of the Australian economy, NAB said.
Manufacturing conditions continued to fall sharply in August while mining and the service sectors generally remained strong.
NAB said it expected the Reserve Bank of Australia (RBA) to keep the cash rate steady for “a considerable period”, with a 0.25 percentage point hike expected in mid-2012.
The RBA has kept the cash rate at 4.75 per cent since November last year.
Citigroup economists say the fall in business confidence, if not quickly reversed, suggest that the central bank may need to reconsider its current restrictive stance on monetary policy.
“Indeed, the level of confidence now is consistent with a 25 basis point cut in the cash rate by RBA,” the economists said in a statement.
The Westpac/Melbourne Institute consumer sentiment survey for September, which is due for release on Wednesday, would provide timely information on how households are reacting to the economic and financial uncertainty, the economists said.
