Confidence among Australian businesses fell sharply in October as firms started to reassess their future plans in the wake of continued weakness in operating conditions and changed political climate, a monthly survey by the National Australia Bank revealed Tuesday.
The business confidence index fell to 5 in October from September's three-and-a-half year high reading of 12.
The pull back in confidence suggests businesses may have reassessed their expectations about the future activity in the changed political environment given the continued weakness in actual business conditions, NAB chief economist Alan Oster said.
"Nonetheless, the relatively elevated level of business confidence, compared to early 2013 readings, suggests businesses may still be feeling buoyed by positive housing price trends and low borrowing rates," Oster pointed out.
The indicator for business conditions remained at a low level of -4, unchanged from September. Still, this was a better outcome compared to the very subdued level of activity experienced for most of this year, NAB said.
October's forward indicators provided an unfavorable picture for the outlook, with forward orders, stocks and capacity utilization paring back earlier gains. Though, employment conditions posted another modest rise, the index remained negative suggesting jobs shedding continued in the month.
"Today's numbers would be quite disappointing for the RBA Board, in that the business sentiment improvement has faltered, and further, with any lift in conditions being driven by mining, thanks to stronger commodity prices, AUD is less likely to play the appropriate adjustment role," said Ben Jarman, an economist at J.P. Morgan Australia.
In its November statement on monetary policy, the Reserve Bank of Australia, or RBA, revised its GDP forecast for the year to December 2014 to between 2-3 percent, down from the 2.5-3.5 percent forecast in its August statement.
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