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Business confidence in Australia slipped for the first time in five months, driven by a decline in confidence among retailers and manufacturers, a report released by the National Australia Bank said on Tuesday.
The index measuring business confidence stood at 14 in September, down 4 points from August's reading of 18. August marked the highest reading recorded in the index in nearly six years. A figure above zero means optimists outnumber pessimists.
The decrease in the index was largely due to the receding confidence among the retail and manufacturing sectors, which fell 6 points and 11 points, respectively, from August, while higher confidence was seen in the construction sector on the back of higher infrastructure spending.
In September, business conditions eased by 1 point to 3, marking the first decrease in the index in four months, led by falls in the trading and profitability indices. The profits index stood at 4 in September, down 7 points from August, while the trading index was down by 4 points to 8.
However, the employment index surged up 10 points to minus 1 in September. Forward orders were on the rise, with the index rising 9 points to 7, while capacity utilization remained unchanged. Further, the availability of credit eased significantly, with the difficulty in finding finance index falling 11 points to 7.
At the same time, labor costs were up 0.5% on a quarterly basis in September, but remained at a record low reading of 0.5% in the year to September period, while price pressures and wage pressures were also low.
The National Australia Bank noted that despite the decrease in business confidence and conditions, the index continued to remain well above long-term average levels and left its forecasts for the economy unchanged, with the GDP predicted to remain flat in the second half of 2009. The bank expects the economy to show 0.6% growth this year, and a considerably stronger growth of 2.1% in 2010.
However, it forecasts unemployment to rise, and expects the rate to peak at 6.7% in mid-to-late 2010 from its current level of 5.7%.
The bank also expects the Reserve Bank of Australia to raise interest rates by a further 25 basis points in each of the two next meetings to bring up the overall cash rate to 3.75% by year end.
September's business survey results come close on the heels of Australian Treasurer Wayne Swan's comments on Monday that the economy is likely to operate below capacity for a while yet and that the unemployment rate is likely to rise further.
He said that the Australian economy proved its resilience in the face of massive, synchronized recessions in almost all other major economies and performed better than expected at the time of the Budget in May. However, significant challenges and risks remain, Swan said in a function organized by the Australian Business Economists.
According to Swan, the global economy and global financial markets remain in a more fragile state than they were prior to this crisis. He added that a sustained global recovery is no sure thing. Further, he said, "Just as all of the monetary policy stimulus won't be withdrawn overnight, nor should the fiscal stimulus be withdrawn sharply or prematurely either."
The Australian dollar edged down against its major rivals following the release of National Australia Bank business survey results.
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