Australian Business Confidence Improves in January but Remains Weak

Australian business confidence has improved in January primarily due to an improving global economy, better business activity in China and the recent interest rate cuts by the Reserve Bank of Australia (RBA), according to a closely-watched private survey.

The monthly survey of more than 400 firms by National Australia Bank (NAB) showed that an index of business confidence edged up to 3 in January from 2 in December. A level above zero indicates improving conditions and a minus reading indicates worsening conditions.

Nevertheless, business confidence remains below long-run average levels and the outlook is poor, according to NAB. The index of business conditions, which tracks goods orders, employment and profitability, improved to minus 2 in January from minus 5 in the previous month.

"While profitability and trading conditions posted solid gains in the month, employment conditions weakened considerably. Forward orders were little changed at poor levels suggesting little upward momentum," NAB chief economist Alan Oster said in a statement.

Additionally, capacity utilisation fell to its lowest level since 2001, while credit demand remains at near record lows.

The measure of business sales rose 6 points to a net balance of 1 in January, and the index of profitability gained 7 points to minus 1.

However, the measure of employment declined by 4 points to minus 7, with construction again the weakest sector.

"Overall, the survey implies underlying demand growth in the March quarter of around 2.75 percent - a slight improvement on expectations for the December quarter but still below trend," Oster said.

NAB expects further rate cuts by the RBA in 2013, but the next move is not expected to come until May.

Earlier, the RBA left the benchmark cash rate unchanged at 3 percent on 5 February, citing improved global economic conditions. Between May and December in 2012, the central bank cut the cash rate four times, reducing the rate by 1.25 percentage points in total.

A separate survey by Roy Morgan Research revealed that business confidence in Australia in January increased by 7.7 points to 122.5 from December, the highest level since April 2011.