Australia Business Confidence Sinks to Record Low

Australian business confidence sank back to record lows in January as a swathe of industries reported falling demand at home and the global recession took a punishing toll on exports, a survey showed on Tuesday.

CNBC.com

The monthly survey of over 400 firms from National Australia Bank also found a further slump in business investment and hiring intentions to lows last seen in 1992.

NAB's measure of business confidence dived 12 points to -32, the lowest in the history of the series and more than reversing December's 10 point bounce. The main index of business conditions fell 5 points to -11 points.

The grim report will add to pressure for further economic stimulus, though the survey was taken before this month's sharp cut in rates from the Reserve Bank of Australia (RBA) and the launch of a second package of government spending measures.

"As such confidence may have improved a touch since then," said Alan Oster, group chief economist at NAB. "The fact remains, however, that even on last month's reading confidence was already at levels at or below the bottom of the early 1990s recession."

"The situation domestically continues to fundamentally deteriorate," he warned. "Accordingly, we expect the RBA will need to provide a further large cut soon, say 75 basis points bringing the cash rate down to 2.5 percent by March."

The central bank last week cut its cash rate by 100 basis points to a record low of 3.25 percent, bringing its easing since September to a huge 4 percentage points.

The market has since scaled back expectations for a further sizable cut in March, thinking the RBA would like to pause to assess the impact of its easing to date.

Yet, Tuesday's survey suggested they might not have the luxury of taking it slowly.

In particular, firms reported a drastic decline in export orders as many of Australia's major trading partners were either in recession or slowing sharply.

The index of exports dropped 8 points to -33, the lowest since NAB started measuring them in 2001.

"The trends that have emerged in recent months are quite stark and concerning," said Oster.

The overall index of sales eased 7 points to -4 in January, with manufacturing and construction the worst hit, while mining reported no growth for the first time in over six years.

As a result, businesses were cutting back sharply on investment, which has been one of the strongest features of the economy during the now-bust commodity boom of recent years.

Firms were also firing more, with the survey's index of employment remaining at a recessionary -17 points in January.

"The survey is strongly indicative of employers continuing to shed labor, and at more rapid rates than that so far evident in the statisticians estimates," said Oster.

The government's monthly report on employment is due on Thursday and analysts have been looking for a drop of around 20,500 in January, following a surprisingly small fall of 1,200 the month before.

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The jobless rate is seen rising to 4.7 percent in January, the highest in over two years, from 4.5 percent in December.

The deterioration in the jobs market led to a fall in labor costs in January, the first in the history of the survey. The annual increase in wages slowed to 4.0 percent, compared to a peak of 5.4 percent in mid 2008, which while promising for inflation also pointed to pressure on household incomes.

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