Bloomberg News

Australian Business Confidence Slumps to 10-Month Low on China

July 09, 2012

Australian business confidence fell to a 10-month low in June as concern that Europe’s debt crisis will slow Chinese growth overshadowed central bank interest-rate reductions, a private survey showed.

The confidence index slipped to minus 3 last month from minus 2 in May, a National Australia Bank Ltd. (NAB) survey of more than 300 companies taken June 19-29 and released in Sydney today showed. The business conditions gauge, a measure of hiring, sales and profits, improved to minus 1 from minus 4.

“Business confidence fell heavily in mining in June -- down 18 to -14 points -- likely reflecting the recent downgrade to the Chinese growth outlook and concerns about the stability of the euro, with both of these factors influencing the outlook for global commodity demand,” NAB Chief Economist Alan Oster said. Anticipation of a July 1 introduction of a levy on iron ore and coal mining profits also was a factor, he said.

China, Australia’s biggest trading partner, cut rates on July 5 for the second time in four weeks and Australian policy makers lowered borrowing costs by a total of 75 basis points in May and June as Europe’s turmoil threatened to disrupt the global economy. Driving Australia’s growth is a A$500 billion ($510 billion) pipeline of investment in resource projects by companies such as BHP Billiton Ltd. (BHP), the world’s largest mining company, to meet demand from emerging nations in Asia.

The Australian dollar rose 5.2 percent in June, its biggest monthly increase since October, and the currency’s sustained strength is hurting non-resource industries such as manufacturing and tourism. In addition to the resource taxes, the government this month introduced a levy on carbon emissions designed to reduce pollution.

RBA Outlook

Traders are pricing in a 66 percent chance Reserve Bank of Australia Governor Glenn Stevens will lower the benchmark rate by a quarter-percentage-point to 3.25 percent at next month’s policy meeting, Bloomberg data based on swaps trading show.

Australia faces a two-speed economy -- a phrase the RBA uses to distinguish resource-rich regions in the north and west that are powering growth and hiring workers, from struggling industries across the south and east.

While business conditions improved, driven by a pickup in trading conditions and profitability, the rise was not enough to unwind the deterioration in the previous month, NAB said.

“Employment conditions remained weak,” Oster said. Stronger conditions were fairly broad-based across industries, “but not across states; the divergence between Victoria and Western Australia has become increasingly pronounced. Forward orders sank to the lowest level in three years, driven largely by a heavy fall in manufacturing orders. However, capacity utilization and stocks did improve a touch, albeit from low levels,” he said.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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