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China optimism boosts business confidence

Business confidence has risen sharply following financial crisis lows of the month before, but business conditions remain soft and forward indicators of demand are weak, the National Australia Bank's monthly business survey shows.

The temporary aversion of the US ''fiscal cliff'' and more positive data about the Chinese data, coupled with the Reserve Bank's 25 basis points interest rate cut last month, saw NAB's monthly business confidence index lift to 3 in December, from minus 9 the month before.

The monthly business conditions index improved from minus 6 in November to minus 4 in December, as conditions remained particularly challenging in the wholesale, manufacturing, retail and construction sectors, the bank said in a statement this morning.

''When combined with particularly weak activity readings in the preceding three monthly surveys, the December monthly survey provided further evidence that the Australian economy slowed into the back end of 2012,'' NAB said.

Although business confidence rose, the bank said it was not yet known if the feelings of optimism would continue into this year.


NAB said the weakness in wholesale was worrying and could be an indicator for poor business conditions at in the first quarter of 2013.

''Our analysis suggests that if the December reading for wholesale conditions were to continue in [the first-quarter of] 2013, overall business conditions could be expected to fall to around minus 8 index points,'' the bank said.

''That, in turn, is suggestive of an economy running at around 1 per cent growth in annualised terms.''

Business conditions in South Australia and Western Australia fell sharply in December, in part due to the effect of reduced mining investment on supporting industries, NAB said.

But conditions strengthened in Queensland, Australia’s second largest mining state.

At the same time, business confidence rose across Australia, with a strong lift in Western Australia on the back of the rise of the iron ore price and stronger Chinese data, NAB added.

When combined with particularly weak activity readings in the preceding three monthly surveys, the December monthly survey provided further evidence that the Australian economy slowed into the back end of 2012

The bank said it still expected three interest rate cuts this year, starting at the Reserve Bank's next meeting on February 5, and a growth of 2 per cent for 2013.

Roy Morgan survey finds decline in confidence

Meanwhile, a business survey by Roy Morgan in mid-January found a small decline in business confidence for December, reflecting a mix of positive and negative business news during that period, the research company said.

‘‘This rather complex interaction of factors on business is likely to result in continued volatility in Business Confidence for some time until a clearer and more stable pattern emerges,’’ Roy Morgan industry communications director Norman Morris said.

Roy Morgan added that the fall reflected businesses’ concerns that Australia’s economic conditions would not improve over the next year, or the next five years.

Consumers 'paying down debt'

At the same time, a Newspoll survey by Dun & Bradstreet on consumers’ credit expectations, which was released this morning, found that respondents were cutting back on debt and increasing their use of debit cards as they became more cautious about spending and borrowing.

Expectations for household debt this month were at 18 per cent for the March quarter, a fall from 22 and 26 per cent for the last two quarters, the survey found.

‘‘Overall, we’ve witnessed a sizeable shift in the spending behaviour of the Australian consumer. There is a greater degree of consideration being applied to each spending decision and a greater focus on spending within our means,’’ Dun & Bradstreet's chief executive Gareth Jones said in a statement.

‘‘This attitude towards spending, especially on discretionary items, can have a negative knock-on effect for Australian businesses.... The upside to this ongoing mood of consumer conservatism is that we may see an improvement in the levels of personal debt and delinquency, which should help those households experiencing financial stress.’’

Australian businesses in China 'optimistic'

In a separate survey, the Australia China Business Perceptions Survey, released today, found that 69 per cent of Australian businesses operating in China were optimistic about the country’s economy, while 66 per cent had a positive outlook of their own organisation’s performance within it.

Federal trade minister Craig Emerson welcomed the results of the survey, which was conducted by Sweeney Research, saying that ‘‘China’s shift to a consumer-driven growth model is creating huge demand for a range of high-value Australian goods and services, as well as our traditional commodity exports’’.

Business conditions by state, seasonally adjusted: NSW 0, Queensland 0, SA -22, Victoria -6, WA -12.