By Chris Zappone
Update Business confidence has slumped to its lowest level in almost a year, as turmoil on financial markets, the sliding Australian dollar and uncertainty over the government's proposed new mining tax took their toll on sentiment.
The National Australia Bank survey of business confidence index dropped to 5 points in May from 13 in April, marking its third straight monthly decline, and bringing the reading below its long-term average of 7 points. NAB cut its growth forecast for the economy in part because of the deteriorating business view.
''This broad-based reversal in confidence partly reflects disturbances on global financial markets, including concerns about sovereign debt, and associated declines in Australian equity prices,'' said NAB chief economist Alan Oster.
Global share prices in May staged their biggest monthly decline since the depths of the global financial crisis as worries about European sovereign debt issues flared up, renewing fears about the strength of the economic recovery in many countries. Australia took the brunt of much of the sell-down because its currency and stocks are viewed as more risky, given the country's dependence on more volatile exports, such as commodities.
The drop in confidence was felt most acutely in the mining sub-index, which tumbled 30 points to 4 in May, NAB said.
Miners were wary of the government's proposed Resource Super Profits Tax announced at the start of May, NAB said.
Business conditions, which measure the current situation for companies, fell 6 points, edging down from 8 points, amid weaker profitability - marking the second month of declines as the pace of the local economy's rebound faltered.
Growth forecast cut
Among the other grim readings contained in NAB's May survey, forward orders slid to minus-1 from 2 in April, while the stocks inventory sub-index, eased nine points to minus-2, amid a weaker retail sector. Export sales dropped to minus-8 in May from minus-4.
In addition to the release of its survey, NAB lowered its growth forecast for Australia, ''reflecting consumer weakness, lower equity and commodity prices, weaker forecasts for public final demand and soft survey results.''
The bank now expects gross domestic product growth to be 2.75 per cent in 2010, from the 3.5 per cent earlier tipped.
For 2011, NAB said it expects the economy to grow at 3.5 per cent in 2011, from an earlier 4.25 per cent predicted pace.
The Australia's economy is already showing signs of cooling.
GDP growth slowed in the first quarter of 2010 to 0.5 per cent from 1.1 per cent in the final quarter of 2009, the Australian Bureau of Statistics reported last week.
Over recent months, a mixed set of signals has emerged with retail sales remaining spotty in part because of the squeeze on household spending resulting from higher interest rates.
Although the Reserve Bank kept rates on hold at 4.5 per cent this month after increasing them six times since October, analysts forecast more rate rises to come as the growing economy uses up capacity
czappone@fairfax.com.au
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