By Jacob Greber
Dec. 9 (Bloomberg) -- Australian business confidence held at a record low in November, reinforcing speculation the economy may slide into its first recession since 1991.
The sentiment index fell 1 point to minus 30 from October, the lowest level since the series began in 1989, according to a National Australia Bank Ltd. survey of more than 560 companies conducted between Nov. 23 and Nov. 30.
Business sentiment is being buffeted by this year’s 43 percent slump in the S&P/ASX 200 stock index, turmoil on global credit markets and signs that consumers have slashed spending. Central bank Governor Glenn Stevens cut borrowing costs last week to a six-year low of 4.25 percent, extending the biggest round of interest rate reductions in almost two decades.
“The results of the November survey make grim reading,” said Alan Oster, chief economist at National Australia in Melbourne. “The financial crisis is now having real effects on the Australian economy, with significant revisions down on business views about future employment and investment.”
The business conditions gauge, a measure of hiring sales and profits, tumbled 6 points in November to minus 17, the lowest level since 1997, according to today’s report.
“What is particularly concerning is the speed of the deterioration in recent times,” Oster said. “Nor does it appear that the deterioration has bottomed.”
The Australian dollar fell to 66.10 U.S. cents at 11:37 a.m. in Sydney from 66.19 cents before the statement was released. The two-year government bond yield was unchanged at 3.11 percent.
Stimulus Package
Concern that the economy is faltering prompted the government to give A$10.4 billion ($6.9 billion) in grants to pensioners, families and first-home buyers. Most of the payments were made this week.
If the economy is to avoid a contraction, “much clearly depends on consumers spending the government’s fiscal package,” Oster said.
The economy grew 0.1 percent in the third quarter from the previous three months, the weakest pace in eight years.
Retailers such as Harvey Norman Holdings Ltd. are reporting falling profits amid the slump in consumer spending, which accounts for around 60 percent of gross domestic product.
Australia’s biggest furniture and electronics retailer said last month that earnings in the quarter through September fell 32 percent and that profit margins remain “under pressure.”
‘Significant Deterioration’
One of the more concerning findings in the survey is the “significant deterioration in orders,” Oster said. A gauge of orders slumped 5 points in November to minus 25, the lowest since late 1991, when the economy was last in a recession.
About 27 percent of companies reported tougher credit availability, according to today’s survey.
“A combination of falling sales, profits and confidence has significantly affected employers hiring and firing behaviors,” Oster said.
The jobless rate rose to 4.4 percent in November from 4.3 percent in October, a Dec. 11 report may show, according to the median of 22 economists surveyed by Bloomberg.
Governor Stevens said last week that the Reserve Bank of Australia’s monetary policy is now “expansionary” to help restore consumer and business confidence.
Stevens and his board have reduced the benchmark rate since early September by 3 percentage points, and are forecast to cut the rate by another half-point when they next meet on Feb. 3, according to 16 of 21 economists surveyed by Bloomberg News.
Oster said National Australia expects interest rates will be reduced to 3 percent early next year.
The sentiment index posted an 11th straight reading of less than zero in November, which indicates companies expecting their industry will deteriorate outnumber those seeing an improvement.
“The falls in business confidence are extremely broad based,” led by declines in wholesaling, manufacturing, construction and retailing, Oster said.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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