By Chris Zappone
Business confidence has turned positive for the first time since December 2007, as companies see improved sentiment about the economy translating into stronger demand for goods and services.
Confidence, measured by the National Australia Bank's Business survey, gained 6 points in June, to a reading of 4 index points.
It's the first time optimists have outnumbered pessimists since before the financial crisis kicked into high gear.
The pickup in business confidence adds to recent evidence indicating that Australia's economic downturn may turn out to be a lot less severe than many pundits predicted. While unemployment is rising, the increase so far has been gradual, compared with previous slumps. Retail sales and consumer confidence, meanwhile, have also come in better than expected.
The June business survey "suggests that improved confidence has now been reflected in better business outcomes'', NAB chief economist Alan Oster said.
"Indeed, business conditions appear to have rebounded to a level roughly similar to that reported prior to the collapse of Lehman Brothers in September 2008 and the near global meltdown in activity that ensued.''
Business conditions also jumped sharply to minus-2 in June from minus-14 in May, NAB said.
All components of business conditions rose in June, led by the labour index which jumped 18 index points to minus-7 points, the largest one-month jump in the survey's history.
Trading increased 10 points, taking it to 3, while profits increased 7 points to minus-2, the report said.
The dollar gained on the news, rising to above 78.3 US cents from about 78.15 US cents prior to the release. Stocks extended their gains, trading about 2.2 per cent higher for the day.
Treasurer Wayne Swan, though, warned that the global recession will continue to drag on the economy. The slump in export prices compared with import ones will alone lop three percentage points from national income in 2009-10, Mr Swan said in an address to the Australian National University.
Still, Wilson HTM investment adviser Henry Edgar said the NAB survey "does indicate some confidence is creeping back into the market and the economy, more importantly''.
"We just need the consumer to keep going as well,'' he said.
The heart of the financial crisis centred around debt, Mr Edgar said, but now companies have largely repaired their balance sheets through capital raisings, so "now you can have a bit more confidence''.
"There is little doubt that the second round of cash hand-outs together with the extension of the first-home owners grant and the investment allowance, has impacted significantly on the June readings,'' said Mr Oster.
"That is also suggested by the sharp improvements in manufacturing, construction and wholesaling in June - together with ongoing outperformance in retail.''
May retail sales increased a full 1 per cent, more than expected by economists, as shoppers with stimulus cheques in hand flocked to stores to take advantage of discounts.
"Easing in global financial markets at the same time has helped the finance sector,'' Mr Oster said.
Also, the number of home loans rose 2.2 per cent in May, the eighth straight month of gains, helped by the low interest rates and the first-home buyers grant boost, which was extended in full until the end of September.
Despite rising business confidence and conditions, a sustained recovery depends on continued growth in demand for goods and services, NAB said.
Unfortunately with joblessness continuing to rise, it's too soon to expect demand to recover fully, the bank said.
Unemployment ticked up to 5.8 per cent in June and is tipped to grow to at least 8 per cent by next year as the global slowdown weighs on the local economy.
"Our forecasts are for a rather weak recovery from the current deep recession,'' Mr Oster said. "Looking forward it is hard to see the pace of consumption being maintained in the face of less cash handouts, rising unemployment and the damage done to household balance sheets.''
"While interest rates have no doubt helped, we see the current improvement in construction as very much more tied to the boost to the first home owner's scheme which is due to be phased out over the next six months.''
The Reserve Bank kept interest rates on hold at a 49-year low of 3 per cent this month, in an effort to lower the cost of home buying, lending and construction.