The latest National Australia Bank's (NAB) quarterly index of business confidence released on Thursday showed that belief on economic conditions retreated by 14 points to three index points in the June quarter as mounting worries on financial markets turbulence applied heavy burden on Australian firms.

NAB chief economist Alan Oster said that overall, the country's business confidence remained positive but the June quarter readings of business conditions declined steeply, which was the first since recovery gains were achieved from the recent global financial crisis, adding that "confidence had been relatively euphoric since the middle of last year, but the June quarter saw it retreat to more temperate levels."

Mr Oster observed that "the monthly surveys suggest that businesses became much less optimistic in May, as Euro-centric financial market troubles sparked reductions in equity and commodity markets and were associated with a sharp decline in the Australian dollar."

The NAB report, which was undertaken just before the ascension of Julia Gillard as prime minister and the dumping of the RSPT, said that confidence were seen as solid in mining, manufacturing and finance with weak spots seen in construction, recreation and wholesale sectors.

It also showed that business conditions plunged by two points to six index points as lower sales and profitability marked the June quarter, though Mr Oster pointed out that employment increased in the same period, which indicated that demand was strong early this year as he stressed that "the latest quarterly readings of forward orders suggest that domestic demand was running at an annualised rate of around four per cent."

The survey found that employment index jumped by two points to nine index points in the same quarter but it also showed that trading index declined by five points to four points in June while profitability slid by six points to three points in the same period.

The NAB report said that retail, wholesale, transport and recreation conditions declined in June quarter while the construction and manufacturing sectors saw considerable growths, as it emphasised that "conditions were strongest in mining, where higher export prices were still being absorbed, and finance and construction."

In consideration of the latest figures, NAB is predicting that the cash rate would remain untouched through the latter part of 2010 but it conceded that the Reserve Bank of Australia (RBA) would have to impose a hike of 25 basis points by November or December, en route to a year-end rate of 5.0 percent, with further increases by the mid-part of 201, which could peak to 5.5 percent, in order to fend off the effects of inflationary pressures.