Business confidence declined in December as Australian firms absorbed a series of official interest rate rises by the central bank and trading conditions tightened, a survey shows.

But Australia’s economy is on track to register economic growth of up to one per cent in the fourth quarter of 2009, which would take the annual rate to one per cent, according to the latest National Australia Bank (NBA) monthly business survey.

NAB’s business confidence index declined by 11 index points to plus-eight points in December.

The confidence of firms in the mining and construction improved but there were broad based falls in the retail, wholesale, finance, transport and recreation sectors.

Meanwhile, the business conditions index was unchanged at plus-10 index points in December.

Trading conditions grew by two index points to plus 17, while profitability showed a more marginal improvement of one index point to plus 12.

NAB chief economist Alan Oster said businesses were facing up to the reality of tight trading conditions and higher interest rates after three hikes by the Reserve Bank of Australia (RBA) since October last year.

“The fall [in confidence] may represent a return to greater realism given current activity and trading conditions,” he said in a statement on Tuesday.

“Overall the falls in confidence were broadly based but more marked in retail, transport and personal and recreational services.

“That suggests that RBA actions and the high Australian dollar are starting to moderate expectations.”

The NAB survey also showed the Australian economy was maintaining significant momentum and could have grown by between 0.75 per cent to one per cent in the fourth quarter of 2009.

“Our current expectations of growth of between of 0.75 to one per cent in quarter four would see Australian gross domestic product average one per cent in 2009,” NAB said.

“The survey also points to continuing strength in forward orders and confidence levels.

“It now appears that business is re-employing, raising capacity utilisation and very tentatively raising longer run investment intentions.”

Capacity utilisation moved higher in December, edging up 0.2 percentage points to an overall reading of 81.6. The survey noted capacity utilisation remained above the long term average and continued to trend up.

Meanwhile, a fall in forward orders in the construction sector saw the forward orders slip two points to plus seven.

The survey also showed employment improved in the month, to seven index points from two points in November.

Export sales fell to minus 13 points from minus seven, marking the third straight fall in the sector since October.

The cash interest rate currently sits at 3.75 per cent, after the last RBA rate hike in December.

Most market forecasters expect the central bank to lift the cash rate to four per cent after its board meeting on Tuesday. The decision will be announced at 1430 AEDT.

AAP