By Chris Zappone
Business confidence in Australia collapsed to a record low in October as fears of a global economic slowdown crushed optimism at home.
Companies' confidence has now slid for 10 months in a row. Last month's decline accelerated, though, with National Australia Bank's survey plunging 21 points to minus-29 from minus-8.4 in September. A negative reading indicates that pessimists outnumber optimists.
"Continuing volatility in global equity markets, emergency financial packages, falling commodity prices, and continuing talk of a global recession have finally broken business optimism and now fear reigns supreme," said NAB group chief economist Alan Oster in a statement.
"Indeed it is worth noting that confidence readings are worse than the bottom of the 1990s recession has more to do with fear of the unknown than actual current outcomes."
Australian companies are paring back production as orders shrivel at home and abroad. Alumina today became the latest firm to announce cut backs, with plans to reduce its aluminium output. Rio Tinto and Fortescue yesterday announced a reduction of about 10% in iron-ore production in part because of slowing demand in China.
The Reserve Bank yesterday lowered its growth forecast to 1.5% in 2008-09 from its 2.25% forecast made in August. That estimate undercut the Rudd Government's own target of 2% announced last Wednesday.
For corporate leaders in Australia, the weakening environment has not yet translated into lower pay.
Chief executives of the top 300 listed companies averaged $2.97 million in the year to June 2008, a gain of less than 1%, from $2.96 million, according to the Australian Financial Review. Over the same period, though, the S&P/ASX 200 plunged 16.9%.
Bad news for Australian stocks continued today, with the main index falling below 4000 points after another retreat on Wall Street and China's rescue package failed to inspire investors.
The benchmark S&P/ASX200 index closed 3.6% lower, or 146.9 points, to 3960.9. The All Ordinaries index was down 3.4%, or 138.2 points, to 3921.8.
Today's confidence dive surpasses the level hit during 2001, when it reached minus-23, according to NAB.
The broad-based falls in confidence measured by NAB echoed a drop in business conditions, which tumbled 10 index points to minus-11 points in October from minus-1 in September, bringing the index near lows not seen since early 2001 when an economic slowdown was under way, Mr Oster said.
Within the business conditions survey, employment tumbled a "relatively sharp" 8 points to minus-10 index points.
The contraction in the labour component "is now indicative of labour shedding occurring and is more bearish than the official ABS employment estimates," NAB said.
Trading conditions plunged 11 points in October to minus-10, profitability dropped 9 points to minus-13 points, bringing all three sub-components of the survey to levels not seen since 2001.
"What the survey is clearly highlighting is the combination of falling sales, profits and confidence has significantly affected employers hiring and firing behaviours," Mr Oster said. "Probably the most concerning reading in the entire October survey was the very sharp fall in forward orders."
New forward orders have contracted below minus-10 in the latest reading by NAB.
"By industry, forward orders have fallen to near-recessionary levels in both manufacturing and retail," Mr Oster said.
In addition to falling demand, a shortage of credit will likely continue to squeeze business.
One-quarter of the survey's respondents said credit availability had tightened, while 35% expect more difficulty getting loans in the future.
Prime Minister Kevin Rudd will join leaders from the 20 largest industrialised and developing economies this weekend in Washington to discuss responses to the credit crisis which pushed global banking to near-collapse in recent months.
China announced on Sunday that it would pump as much as 4 trillion yuan ($870 billion) into its economy over the next two years to help shore up growth.