Australian Business Sentiment Plunges to Record Low

By Jacob Greber

Feb. 10 (Bloomberg) -- Australian business confidence tumbled in January to a record low as global demand for exports wanes, adding to signs the economy will fall into its first recession in almost two decades.

The sentiment index dropped 12 points to minus 32, the lowest level since the series began in 1989, according to a National Australia Bank Ltd. survey of more than 400 companies conducted from Jan. 28 to Feb. 3 and released in Sydney today. A negative reading means pessimists outnumber optimists.

Most companies were surveyed before the government announced plans last week to spend A$42 billion ($28 billion) on infrastructure and cash handouts to families, doubling its rescue package to cushion the economy from declining export income. To stoke business and consumer confidence, the central bank has cut the benchmark interest rate by four percentage points since early September to a 45-year low of 3.25 percent.

“Unfortunately, there are strong indicators in the survey to again point to further falls ahead,” said Alan Oster, chief economist at National Australia in Melbourne.

“While much of the downturn to date has been driven out of the domestic economy, the survey is increasingly showing signs of the impact of global forces.”

The Australian dollar fell to 67.09 U.S. cents at 11:36 a.m. in Sydney from 67.26 cents just before the report was released. The two-year government bond yield declined 2 basis points to 2.80 percent. A basis point is 0.01 percentage point.

Jobless Rate

Companies including BHP Billiton Ltd., the world’s biggest miner, and investment bank Macquarie Group Ltd. are firing workers after the economy grew at its slowest pace in eight years in the third quarter.

The government expects the jobless rate will rise to 7 percent in 2010 from its current two-year high of 4.5 percent. A report published yesterday showed advertisements for job vacancies fell in January for a ninth straight month.

Australia’s trade surplus shrank by almost half in December as coal and metal exports tumbled, a report showed on Feb. 3.

Today’s survey suggests the government’s first stimulus package, announced in October and which included A$10.4 billion in grants to families, pensioners and first-home buyers, “provided only temporary relief and the situation domestically continues to fundamentally deteriorate,” Oster said.

Interest Rates

The Reserve Bank, which cut its benchmark rate on Feb. 3 for the fifth time since September, will need to reduce borrowing costs by three quarters of a percentage point to 2.5 percent next month, Oster said.

“The recent collapse in confidence and the deteriorating global and commodity price outlook has seen a marked paring back in investment intentions for coming months,” he said.

The business confidence index recorded a 13th straight reading of less than zero in January, which indicates companies expecting their industry will deteriorate outnumber those seeing an improvement.

The business conditions gauge, a measure of hiring, sales and profits, fell 5 points to minus 11.

“It is concerning that businesses continue to report forward orders at levels last seen in late 1991,” Oster said.

Australia’s economy will probably shrink 0.25 percent in 2009 before expanding around 1 percent in 2010, according to today’s National Bank report.

“It needs to be stressed that we see no fast recovery in Australian activity,” with a rebound unlikely to get under way until next year, Oster said.