By Chris Shaw

National Australia Bank's Monthly Business Survey for June showed business confidence levels were relatively steady for the month, the decline of one point an improved outcome relative to the large falls recorded in May.

The bank's confidence measure was at four points, which is below the index's long-run average of plus seven points. Confidence declined in the mining sector (the survey was completed before the changes to the Government's proposed mining tax were announced), in finance, in manufacturing and in business services. Gains were recorded in recreation and personal services, along with the wholesale and retail sectors.

Business conditions for June improved two points to a plus eight reading, reflecting better performance in trading in particular, while profitability also rose for the month. Retail conditions remained at relatively weak levels and conditions worsened in the transport sector, while the survey showed continued strong conditions in the mining, construction and finance sectors.

Oster notes both forward orders and capacity utilisation moved higher in June, while stocks were run down from the levels of May. The increase in forward orders implies domestic demand growth of around 4.0%. The survey showed retail prices weakened thanks to further discounting in the sector, while wages moved higher for the month.

Capital expenditure declined by seven points to a plus five reading, Oster noting despite the fall this measure has now delivered a positive reading for five months in succession. This suggests a reasonably favourable environment for business investment in Oster's view.

Credit availability eased in June, Oster seeing this as evidence of a decline in the proportion of businesses finding credit more difficult. The survey showed 46% of businesses didn't need to borrow in June, up from 41% in May.

In Oster's view, the latest business survey strengthens the impression economic growth in Australia remains at reasonable levels, his forecasts calling for GDP growth of 2.75% in 2010 and 3.5% in 2011. Oster is forecasting unemployment in Australia will hit 4.75% late this year and 4.5% by late in 2011.

Interest rates in Australia are on hold for now according to Oster, though he expects the Reserve Bank of Australia (RBA) will move on rates again later this year and push the cash rate to 5.0% by year's end. Rates should then peak at 5.5% in the middle of next year. Oster expects inflation in Australia will be at 3.0% by the end of this year, falling to 2.75% in 2011.

Globally, Oster has lifted his growth estimates, forecasting GDP of 4.5% this year and 4.25% in 2011. The 2010 forecast is up from a previous estimate of 4.25%, which reflects strength in Latin America at present and ongoing solid growth in China, India and other East Asian economies. US data are not particularly strong at present but Oster still expects growth in that economy of around 3.0% this year.

Europe continues to disappoint and there remains the risk of contagion in Oster's view, but he suggests a global double dip recession remains unlikely as while the pace of global growth may have peaked it is not going backwards.

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