Business confidence rebounds but recession still expected

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National Australia BankBusiness confidence rebounded in December after firms received a boost from the federal government’s fiscal stimulus package, survey shows.

But confidence is still at levels similar to those seen during the recession in the early 1990s, and a recession is still expected in 2009.

National Australia Bank’s (NAB) monthly business survey, released on Tuesday, found massive interest rate cuts and the government’s $10.4 billion package had given the retail and wholesales sectors a lift.

The survey’s measure of business confidence rose 10 points to minus-20 index points in December. A reading below zero indicates that pessimists outnumber optimists.

“Business confidence jumped 10 points in December – albeit the level of minus 20 is little better than the bottom of the 1990 recession,” National Australia Bank chief economist Mr Oster said in a statement.

“The result were driven by much larger jumps in retail and wholesale (up 35 and 26 points respectively) in response to the government’s initiatives.”

The NAB survey’s measure of business conditions rose 11 points to minus-six index points in December.

November’s minus-17 index point reading was the lowest level since late 1992, when the Australian economy started its recovery from the last economic recession.

Meanwhile, NAB downwardly revised its forecasts for Australian gross domestic product (GDP) growth after slashing global activity predictions.

Australian GDP growth is forecast to contract by 0.5 per cent in 2009 and grow by one per cent the following year, the survey said.

Mr Oster said NAB’s forecasts meant tough times ahead for the Australian economy, with no fast recovery in store.

“The forecasts imply a relatively mild recession – especially compared to falls in growth of around two per cent in the major industrialised economies,” Mr Oster said.

“On a quarterly basis, we do not see any substantial turnaround getting underway until 2010.”

NAB said it expected the Reserve Bank of Australia (RBA) cash rate, which sits at 4.25 per cent, to bottom at 2.50 per cent, compared with the bank’s previous forecast of three per cent.

Mr Oster said the RBA could cut the cash rate by 75 basis points on February 3, followed by another 50 points easing in March.

In the third quarter of 2009 the central bank was likely to lower the cash rate by another 50 basis points, to 2.50 per cent, as a deteriorating jobs market forced the RBA’s hand, he said.

The RBA has cut the cash rate by a combined three percentage points, over its past four board meetings.

The NAB business survey’s measure of employment remained at it lowest level since 1992 in December.

The survey forecast a surge in job shedding across the non-farm sector, lifting the current 4.5 per cent jobless rate to seven per cent by the second half of 2010.

The NAB survey was conducted between January 12 and January 16 and covered about 400 firms across the non-farm business sector.

AAP

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