Business conditions in Australia weakened in the June quarter, partly reflecting weak demand both at home and abroad. Confidence fell for a second consecutive quarter, despite the central bank's interest rate cuts since November last year.
In a quarterly business survey, the National Australia Bank (NAB) said that its business conditions index fell to -1 in the second quarter from 3 in the previous three months.
The deterioration reflected broad-based declines in trading conditions, profitability and employment conditions. Business conditions deteriorated across most industries, and were particularly weak in manufacturing and construction.
Part of the deterioration in conditions may reflect a weakening in overseas demand for Australian exports due to the more uncertain global environment, as well as a material softening in domestic demand.
The impact to spending from the Reserve Bank of Australia's 125 bps in cash rate cuts since November last year is yet to appear, NAB said in the report.
Expectations about the business conditions in the next 12 months also worsened during the period with the index dropping to 16 from 19 in the first quarter.
However, business investment plans in the next 12 months rose slightly, reflecting a pick up in non-mining capex intentions.
The business confidence index slipped to -2 in the June quarter from -1 in the March quarter.
"The cumulative 125 bps of cuts by the RBA since late last year does not appear to have fully offset heightened concerns about Europe," the report said.
More businesses appear to be worried about the implications of the minerals resource rents tax and carbon tax, which came into effect on July 1.
The Westpac-Melbourne Institute leading index for Australia's economic activity, published Wednesday, suggested that the economic growth may improve in the second half of this year.
The RBA kept the benchmark cash rate unchanged in July. According to minutes of the July Policy Board meeting, the members of the board felt that there was no need to change its key interest rate.
The board members said the Australian economy has been gathering momentum for the past year, although significant downside risk from the European crisis remained.
by RTT Staff Writer
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