Business confidence and conditions improve

By Belinda Merhab
Business confidence and conditions improve

Business confidence has rebounded from its near two year lows due to lower interest rates and an end to federal government leadership uncertainty.

A three point rise in NAB's confidence barometer in March follows a slump to zero in February, when uncertainty over Prime Minister Tony Abbott's leadership offset a Reserve Bank rate cut.

"Any positive impact on confidence from the RBA's February rate cut was likely eroded by offsetting factors - such as the government's leadership spill - but, some of these factors have begun to fade," NAB's economists said.

A rise in mining confidence in March helped lift NAB's overall measure, but the retail sector's score dipped into negative territory for the first time in two years as uncertainty over government policy made consumers anxious, NAB said.

The bank's monthly business survey also showed business conditions flourished in March, jumping from two points to an above-average six.

But improved conditions were very much a recent development, NAB economists said, and need to be repeated for several months before being taken seriously.

"The big picture in Australia is still one where the non-mining sector is struggling to offset the impact on domestic demand of sharply lower mining investment," they said.

NAB expects another rate cut, most likely in May, as the RBA tries to balance its concerns over weak non-mining investment and the booming Sydney housing market.

"The lack of a turnaround in non-mining investment intentions is still a major concern, while a re-acceleration in Sydney house prices suggest that the RBA's capacity to stimulate investment via monetary channels could be severely constrained," NAB said.

"They already consider interest rates to be uncomfortably low."