Australian business conditions recovered slightly in March, a survey showed on Tuesday, but remained near 17-year lows with depressed sales and profits forcing firms to cut jobs at a faster pace. The National Australia Bank's monthly measure of business conditions rose 3 points to -17, recovering from lows not seen since 1992 in the previous month.
Sales and profits both recovered, but anaemic demand saw the employment index fall 2 points to -29. Alan Oster, group chief economist at NAB, said the survey pointed to a further rise in unemployment. The bank expects the jobless rate to rise to 6.75 percent by end-2009 and 7.75 percent by late 2010. "The really concerning aspect of the survey is the continuing rapid falls in employment, now at levels not seen since September 1991," Oster said.
"Overall, the survey still points to falling demand in the first quarter. Rate cuts going forward will be data dependent and likely to be delivered in 25-basis point moves." Australia shed jobs at the fastest pace in six years in March, government figures showed last week, with unemployment jumping to a five-year high of 5.7 percent.
Adding to the gloom, Qantas Airways Ltd said on Tuesday it would cut another 500 management jobs, in addition to 90 top level positions it said in March it would cut and 1,500 other cuts announced last year. Increasing unemployment, which the government has suggested could exceed 7 percent by mid-2010, has revived speculation the Reserve Bank of Australia (RBA) will have to cut interest rates further.
The RBA lowered its cash rate by a quarter of a percentage point earlier this month, with investors expecting another reduction early next month. Some analysts see the cash rate at 2 percent later this year, from 3 percent currently.
Gross domestic product (GDP) fell 0.5 percent in the fourth quarter of last year, compared to the previous quarter, and another contraction this quarter would officially put Australia into recession. NAB's survey did find an improvement in confidence, with that index rising 9 points to -13. "The improvement was broadly based but more marked in mining, manufacturing, retail and finance," said Oster.
"Retail continues to benefit from government cash handouts." Around A$7 billion ($5.1 billion) of government handouts are going out to taxpayers this month, following an even bigger package in December. Firms reported a recovery in forward orders, with that index up 9 points to -18.
But businesses were quickly adjusting to reduced demand in the economy, with the index for stocks falling two points to -12 - the lowest reading since March 1992. The global slowdown was also affecting export orders. The index for export sales fell 4 points to -30. "While the March survey does not provide new intentions data, it does clearly point to a significant ongoing cut back in investment outcomes," said Oster. "Capital spending in March was particularly hard hit in mining and manufacturing."
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