Australian business confidence tumbles


The NAB is still predicting economic growth of 3 percent in Australia next year

By CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- Business confidence in Australia fell by a record 26 points last month after the September 11 terror attacks on the U.S., a key survey released Tuesday shows.

National Australia Bank chief economist Alan Oster said the bank's monthly survey suggests there has been a "fundamental decline" in business confidence.

Oster said it was not surprising that the largest falls in confidence took place in sectors such as insurance, tourism and recreational services and retail/wholesale.

The survey by the NAB, Australia's largest bank, was taken in the last week of September.

It found the business confidence level was down 26 points to minus 10, lower than for the Asian financial crisis in 1997-98.

Activity still 'reasonably robust'

But Oster said business activity remained "reasonably robust", with actual business conditions only marginally off recent highs. The strongest activity increases were in manufacturing and transport.

He said the business conditions index declined one point to zero, which equated to an economic growth rate of about 3.5 percent.

Oster said the bank's forecast remained that while economic momentum was slowing, Australia would still grow at between 2.5 percent and 3 percent in 2001-02 and 2002.

This is down from its previous forecasts of 4 percent, but compares favourably to expected recessions in Asia and the United States this year, and growth of about 1.75 percent in OECD economies next year.

One more rate cut to come


Reserve Bank govenor Ian Macfarlane sess the short-term outlook as "relatively positive".

Oster said the bank still expected the Reserve Bank of Australia to cut interest rates by another quarter of a percentage point before the end of the year.

Following the half a percentage point cut by the U.S. Federal Reserve last week, the RBA cut the Australian cash rate by a quarter of a percentage point to 4.5 percent on October 3.

The NAB survey follows the release Monday of monthly job advertisement data compiled by the ANZ Bank, which showed a reduced demand for labor, particularly in the biggest Australian state, New South Wales.

Job advertisements fell by 1.6 percent in September after rising by 0.9 percent in August.

Unemployment, which stands at 6.8 percent, is a key factor in the federal election campaign now being waged between incumbent Liberal Prime Minister John Howard and Labor Opposition leader Kim Beazley.

Federal election on November 10

Australia will go to the polls on November 10, but the next unemployment figures will be released this week, on Thursday.

The NAB growth forecast of 3 percent next year for Australia is matched by Sydney-based regional analyst IMA Asia, which said in its October outlook it saw 2 percent growth for 2001 and 3 percent in 2002.

But IMA warned that business investment was expected to stall in the next two months in the leadup to the federal election and the generally uncertain international climate.

Reserve Bank Governor Ian Macfarlane said last week that Australia's near-term prospects were "relatively positive".