Business confidence in Australia declined for the third straight month in May and at a marked pace, fresh data showed. Business conditions also eased during the month, with slump blamed on uncertainty in global financial markets.
Media reports said that the National Australia Bank business confidence index stood at 5 in May, down from 13 in the previous month. The fall means the sentiment indicator has fallen below its long-term average of 7.
The sharp fall in sentiment comes in a month in which the Reserve Bank of Australia hiked the cash rate to 4.50% and suggests that Australian businesses are starting to feel the pinch of higher rates. The bank decided to pause the tightening cycle in June.
Confidence fell sharply in mining, wholesale and manufacturing, NAB said. The bank added that the fall in mining sentiment could be partly due to the proposal for the super profits tax on mining companies. The plan, which involves a 40% tax on mining profits from 2012, has sparked widespread debate in Australia, with critics saying that the move will drive investment away from the country. The proposal was made on May 2.
Meanwhile, the business conditions index slid to 6 in May from 8 in April. This marks the second straight month in which the business conditions index has retreated.
The fall in business conditions was attributed to a fall in profitability during May. Employment and trading conditions were more or less unchanged during the month.
Conditions improved strongly in Mining, NAB said, while conditions in transport and construction were also strong. On the other hand, conditions declined in the recreation & personal services, finance, business & property services and wholesale sectors.
Despite the sharp pull back in confidence, firms said they intend to increase capital spending in the future, with the corrresponding index rising by 9 points. Stocks, forward orders and capacity utilization all edged lower during May.
The NAB revised down its growth forecasts for the Australian economy. The country's gross domestic product is now tipped to grow 2.75% this year, down from 3.50%. The economy is seen growing 3.50% in 2011, also down from the earlier forecast for 4.25% growth.
The Australian economy grew 0.5% between January and March compared with the December quarter, slowing from the 1.1% growth in the prior quarter. On a year-over-year basis, the Australian economy grew 2.7%.
The bank expects the Reserve Bank of Australia to hold off further interest rate rises until the final quarter of the year. The RBA is then expected to deliver two quarter percentage point hikes, bringing the overnight cash rate to 5.00% by year-end.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.