Australian Business Confidence Jumps Most Since 2001

June 9 (Bloomberg) -- Australian business confidence jumped in May by the most in almost eight years after the government said it will spend A$22 billion (A$17 billion) to build roads, railways and schools.

The sentiment index rose 12 points to minus 2, the highest level since February 2008, according to a National Australia Bank Ltd. survey of more than 560 companies conducted between May 25 and May 29, and released in Sydney today. A figure below zero shows pessimists outnumbered optimists.

Central bank Governor Glenn Stevens left the benchmark interest rate a 49-year low of 3 percent last week ahead of a report that showed Australia’s economy is one of only a few, including China and India, that grew in the first quarter. The government announced a record building program on May 12 to spur domestic demand.

“The stimulus from the federal budget has clearly raised hopes of a government investment-led recovery, with construction industry confidence leading the way,” said Alan Oster, chief economist at National Australia Bank in Melbourne.

“The survey reinforces the point that the Australian economy continues to outperform other” developed economies, Oster added.

The Australian dollar traded at 79.18 U.S. cents at 11:39 a.m. in Sydney from 79.20 cents just before the report was released. The two-year government bond yield gained 1 basis point to 3.89 percent. A basis point is 0.01 percentage point.

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A separate report published today shows Australian advertisements for job vacancies were little changed in May, after tumbling to a record low in April. Jobs advertised in newspapers and on the Internet dropped 0.2 percent from April and 49.1 percent from a year earlier.

Borrowing costs have tumbled in Australia after Governor Stevens and his board slashed the benchmark lending rate by a record 4.25 percentage points between September and April.

The government also distributed more than A$12 billion in cash to low- and medium income households to stoke spending, driving up retail sales at companies such as Harvey Norman Holdings Ltd.. Treasurer Wayne Swan last month also unveiled a A$22 billion program of spending on roads, rails, ports, hospitals and schools.

“We are likely to see significant growth in public spending over the year ahead, reflecting fiscal policy decisions,” Stevens said in a speech on June 4.

Economic Growth

“Our expectation remains that the economy will be well placed for expansion toward the end of this year,” he added.

Gross domestic product unexpectedly rose 0.4 percent in the first quarter from the previous three months as consumer spending and exports helped Australia skirt a recession, a report showed on June 3.

Still, National Australia Bank’s gauge of forward orders fell 3 points in May to minus 14, “suggesting a still soggy outlook,” Oster said.

Australia’s economy will shrink 0.5 percent this year, before expanding 1 percent in 2010, Oster forecasts.

Australia’s “smaller downturn than most countries” reflects the nation’s limited exposure to “financial excesses that have been the problem in some other countries, as well as the good fortune of our position in relation to China,” Stevens said last week.

National Australia’s business conditions gauge, a measure of hiring, sales and profits, fell 4 points to minus 14.

Governor Stevens and his central bank board will keep the benchmark interest rate at 3 percent to gauge the impact of prior cuts to the overnight cash rate target, Oster said.

“We still see the Reserve Bank as keen to re-establish more normal policy settings once recovery becomes entrenched,” Oster added. The benchmark rate will be raised to 3.5 percent by the end of next year, he said.