National Australia Bank chief economist Australian business confidence plunged last month to the lowest level since April 2009 as a rout in global equity markets and concern about contagion from Europe's debt crisis damaged sentiment, a survey showed.
The confidence index slumped to minus 8 in August from 2 in July, according to a National Australia Bank survey of more than 500 companies from August 24-30 that was released yesterday. The business conditions gauge, a measure of hiring, sales and profits, slid to minus 3 from minus 1.
Monthly employment growth in Australia averaged 2800 from January through August this year, less than a 10th of the average of 30,500 job gains in the first eight months of 2010.
Australia's currency and benchmark stock index dropped last month and the MSCI World Index of equities sank 7.3 per cent as concern increased that the Greek fiscal crisis would drag down other euro-area economies.
The result reflects "heightened global uncertainty, large falls in equity markets and the fear of debt market contagion," NAB chief economist Alan Oster said. "That said, confidence levels remain significantly above global financial crisis or recessionary lows. Clearly, much depends on how activity holds up."
The local currency's 3.5 per cent decline against the US dollar this month has erased about three-quarters of its gain through the first eight months of the year.
A slump in sentiment is weighing on Australian consumers, who are reining in spending as they face the highest borrowing costs in the developed world. Reserve Bank of Australia Governor Glenn Stevens has paused raising interest rates at 4.75 per cent for the past 10 months to gauge the fallout from Europe's debt crisis.
Also unnerving households are five straight months of declines in Australia's S&P/ASX 200 Index, the longest losing streak since the September 2008 collapse of Lehman Brothers started a global financial crisis.
Retail sales growth may struggle to rebound from a two-decade low as the nation's stock market slumps and consumer confidence weakens, curtailing household spending, according to Deloitte Access Economics.
Sales volumes are projected to increase 1.5 per cent in the 12 months through June 30, compared with 1.3 per cent growth in the 2010-11 fiscal year that was the weakest in 20 years and a 2.6 per cent advance a year earlier, the Canberra-based research firm said.
"The bottom line is that things are deteriorating, but we certainly shouldn't be comparing them to that 2008-09 period at this stage," said Bill Evans, chief economist at Sydney-based Westpac Banking.
Clouding Australia's outlook is concern the world's largest economy is slowing. Employment in the US unexpectedly stagnated in August as employers became less confident in the strength of the recovery, and the jobless rate held at 9.1 per cent, according to a September 2 report.
Asia's economic expansion will probably slow and the RBA will eventually cut interest rates, he said.
"The combination of that will lead to a modest weakening in the Aussie dollar," Evans said. He said Westpac's forecast for the currency is about parity with its US counterpart by year-end and "through most of next year", he said.