Rate cuts and government handouts fail to lift business confidence

A series of super-sized rate cuts from the RBA and the Rudd Government’s $10.4 billion fiscal stimulus package has failed to lift the mood of company executives, with NAB’s latest business survey showing business confidence has fallen to a new historic lo

A series of super-sized rate cuts from the RBA and the Rudd Government’s $10.4 billion fiscal stimulus package has failed to lift the mood of company executives, with NAB’s latest business survey showing business confidence has fallen to a new historic low, below the rate seen in the 1990/91 recession.

The survey of 560 firms showed measures of sales and employment at their lowest levels since 1992, while forward orders sank to the lowest since 1991, pointing to more pain ahead.

The survey’s main index of business conditions dropped 6 points to -17 in November, the lowest since 1992.

NAB’s measure of confidence slid down one point to -30, gloomier even than the depths reached in the 1990/91 recession.

NAB’s chief economist Alan Oster says the November survey results make grim reading.

“After the dramatic collapse of business confidence last month, it might have been hoped that recent aggressive fiscal and monetary policy announcements would have seen an improvement.

“That has not happened, with confidence edging down to a new record low.”

Oster says the survey implies that GDP growth in the final three months of 2008 will be negative. If growth in the first three months of 2009 is also negative, Australia will officially be in recession.

“What is particularly concerning is the speed of the deterioration in recent times. Nor does it appear that the deterioration has bottomed,” Oster says.

One somewhat surprising result from the survey was the data on credit availability, with just 27% of firms reporting that it is getting tougher to obtain credit. However, Oster believes this has more to do with a lack of demand from struggling companies than any great improvement in bank’s lending policies.