- George Tharenou, UBS economist
Business confidence in Australia continued to deteriorate in October, though operating conditions improved, according to National Australia Bank. The level of business confidence declined to 4 points, down from five points a month earlier and seven in August. Meanwhile, Business Conditions Index soared 12 points to 13 in the reported month, the highest level since March 2010. Improved conditions for many businesses appeared to be caused by a weaker Australian Dollar and record low interest rates. The Aussie Dollar dropped to a low of 86.43 US cents in October, more than 10 cents below its highest point for the year in July. A weaker exchange rate makes exports cheaper, and locally made goods more competitive. The mismatch between confidence and conditions indicates the strong increase in conditions may be temporary, especially given consumers are cautious and unemployment is still inching higher.
Following years of robust growth led by the Australian mining sector , the economy has started suffering from the fading resource boom. The Reserve Bank of Australia predicts below-trend growth for the next several quarters, before rebounding. Companies will continue to be reluctant to undertake new investment projects until there is evidence of a more substantial improvement in demand, according to the Monetary Policy Statement.
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