Australian business climate cooling, survey shows

Australian business conditions moderated further in the March quarter to be significantly below the peak reached last year, a National Australia Bank (NAB) survey has found.

The bank's latest quarterly survey showed the easing in business conditions in the March quarter was as a result of moderating consumer confidence and demand.

NAB chief economist Alan Oster said the key message from the survey was slowing growth in business activity and weaker confidence.

"Both activity and confidence levels in the business sector during the March quarter have significantly come off the highs of last year," Mr Oster said in Sydney today.

The survey reported that business conditions fell to 14 index points, seasonally adjusted, in the March quarter, compared to 16.9 in the December 2004 quarter.

It was down from the peak of 19.5 in the June quarter.

There was a significant deterioration in seasonally adjusted terms in all components of business conditions -- trading conditions, profitability performance and to a lesser extent employment, Mr Oster said.

"Within trading conditions, domestic sales moderated to their lowest in two years and sales by net importers contracted for the first time in five years, while sales by net exporters expanded at a modest pace," he said.

"Customer confidence and demand were the key drivers of the moderation in sales cited by respondents."

By industry, there were quite disparate conditions, with the cyclically sensitive sectors leading the slowdown in activity, he said.

"Mining experienced boom conditions and to a much lesser extent energy and telecommunications utilities and most services reported favourable conditions," Mr Oster said.

"On the other hand, residential construction, personal and household retailing and parts of manufacturing reported the weakest conditions."

Mr Oster said that business confidence about industry prospects for the next quarter fell to the lowest level in almost two years, after allowing for seasonal influences.

Business confidence -- measuring the outlook of prospects for the following quarter - fell to 7.6 index points in the March quarter, down from 10.8 in the December quarter 2004 and 12.6 a year ago.

Following the rise in official cash rates in early February, but prior to the surprise on hold decision from the RBA in early March, around 87 per cent of respondents continued to expect higher short-term interest rates, Mr Oster said.

Earlier this year, the National Economics team lowered its Australian growth forecasts to around two per cent in 2004/05 and two per cent in 2005/06.

"We are still comfortable with those forecasts," Mr Oster said.

- AAP