Businesses confident amid tough conditions

by Adam Smith09 Nov 2011

Businesses are showing renewed optimism despite declining conditions.

NAB's monthly business survey has indicated that business conditions weakened in October, undoing much of a rise in conditions from the previous month. The bank said the result was indicatiive of "an economy that is treading water at present", with declines in employment conditions, profitability and trading conditions. The conditions index is now seven points below its long-term average.

In spite of the decline in conditions, business confidence strengthened for the second consecutive month. NAB said the improvement was due to speculation that the RBA would cut rates. Confidence increased broadly across industries, though it remained subdued in recreation and personal services, as well as finance, business and property.

In light of the result, NAB has revised its core inflation forecasts downward. The bank said it expected inflation to track at 2% over 2012 before rising to 3% by mid-2013. NAB predicted a further 25bp cut by the RBA in February.

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