- Business confidence worst since 2009
- Confidence persistently weak
- Mining losing the faith
- GDP forecasts below trend


By Greg Peel

National Australia Bank's monthly business survey uses various measures to crunch an index-style reading for business "conditions" and "confidence" on a zero-neutral scale.

The October survey delivered a conditions reading of minus 5 ? the lowest since May 2009. Within that measure, readings for "trading" came in at minus 3, "profitability" at minus 6, "employment" at minus 5 and "forward orders" at minus 5. Confidence ? a precursor for months to come ? showed a minus 1 reading. The NAB economists suggest persistently weak confidence is now having a "material impact" on demand conditions in the Australian economy.

Conditions deteriorated to very low levels, NAB reports, in wholesale, manufacturing and construction, while retail remained weak. Mining also softened, leaving transport and recreation & personal services with lonely positive readings. Conditions in Queensland are the lowest since the 2011 floods and in NSW are the lowest in three and a half years.

NAB finds that the RBA's 25 basis point rate cut in October failed to provide any improvement in sentiment, with businesses focusing more on the economic implications of the need for a rate cut rather than any benefit from lower rates. The softening global economy, soft local labour market, stubbornly high Aussie dollar and the government's fiscal tightening desperation are resulting in growing pessimism, particularly in the mining and construction sectors.

Looking ahead, soft forward indicators suggest no respite in the near term, NAB notes. The capital expenditure sub-index within the survey fell to its lowest level since August 2009, suggesting a tightening of the business investment "boom", especially in the pin-up sector of mining. Overall, says NAB, the survey is indicating a "pronounced" slowing in underlying December quarter GDP to a below trend 2.00-2.25%.

"The Australian economy appears to have stumbled into Q4," says NAB. The economists are forecasting FY13 GDP growth of 2.3% which is a lot lower than the 3.0% forecasts of both the Treasury and the RBA. The slowing in mining investment will weigh, along with the persistent factors of the aforementioned slow global economy, strong Aussie and fiscal tightening from the government.

With inflation remaining in check, even taking the carbon tax into account, NAB is expecting one more rate cut in the cycle ? 25bps in February.