Australia business confidence, activity dip in Feb: Survey

Australia business confidence, activity dip in Feb: Survey

SYDNEY - Australian business confidence and activity both ticked lower in February as a high currency weighed on manufacturing and profits, while an absence of price pressures pointed to scope for further rate cuts if needed to support demand.

A monthly survey of more than 500 firms by National Australia Bank found firms complaining of weakness in profits and forward orders, though there was some improvement in hiring intentions.

The survey's main measure of business confidence edged down 2 points to 1 in February, while the index of business conditions lost a point to -3.

"Perhaps most concerning is the slump in forward orders, with the index declining to its lowest level since May 2009,"said NAB's chief economist, Alan Oster. That measure dropped 7 points in February to stand at -11.

"Combined with still low capacity utilisation, stocks, employment and capital expenditure readings, forward indicators imply little improvement in near-term demand."

Yet, Oster said a pick up in the retail and wholesale sectors suggested that consumers were loosening their wallets in response to recent improvements in both equity and housing markets.

Mining activity also improved notably in the month, consistent with a general pick up prices of the industrial commodities, but construction and manufacturing stayed weak.

The survey showed wage costs remained well contained in February while intense competition kept retail prices flat. Capacity utilisation rose 0.5 percentage points to 79.8 per cent, the highest since last October, but remains low historically.

Oster still expects the Reserve Bank of Australia (RBA) will have to ease policy further, though he has trimmed his forecast to 50 basis points of cuts from 75 basis points.

Improving confidence among businesses and consumers had been a reason the RBA skipped a chance to cut interest rates again at its March policy meeting.

"With weak underlying demand continuing, we still see unemployment rising to 5.7 per cent by mid year, with little sign that non-mining investment will ramp up," said Oster.

Official figures for employment are due on Thursday and are forecast to show the jobless rate ticked up to 5.5 per cent in February, with a modest rise in net new jobs of 9,000.

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