Business conditions improve

AUSTRALIAN business conditions nudged higher last month as a cut in interest rates helped shore up the economy against growing concerns about the outlook for Europe, National Australia Bank said today.

The bank's business conditions index rose 1 point to +1 points in November from October and the business confidence index was unchanged at +2 points over the same period. 

"Given that we have seen some slowing in global activity data, especially in Europe, the uptick in conditions in the month is perhaps more favourable than might have been expected," the bank said. 

The Reserve Bank of Australia cut interest rates at the start of last month, and then backed it up with a second cut this month. The central bank has warned the European debt crisis is beginning to be felt in Asia, a region crucial for Australia's exports. 

Financial markets expect the RBA to continue cutting interest rates in early 2012 as eurozone policy makers continue to scratch for answers to the region's debt crisis. 

"The continuing financial crisis in the eurozone is seriously damaging European business confidence and affecting economic activity. As a result, we are now expecting a deeper recession in that region with spill-over effects around the world," National Australia Bank said. 

NAB cut its forecast for world growth to 3.25 per cent for 2012 saying the big emerging market economies like China, India and Brazil are slowing as earlier policy tightening takes effect. 

Still, Australia's economy is a standout, with the Organization for Economic Cooperation and Development saying recently it will be among the fastest growing developed nations in 2012. 

NAB said the survey results are consistent with Australia growing at or around its historic averages, with improvement in November recorded in forward order, stocks, employment and capacity utilisation. 

Data last week showed the economy grew strongly in the third quarter thanks largely to a mining investment boom. Annualised, the economy grew by 3.9 per cent in the quarter. 

"Australian national accounts data heralded the start of the long-awaited mining investment boom, while consumption growth remains firm," NAB said. 

NAB expects Australia's commodity-rich economy to grow in year average terms by 4.5 per cent in 2012, accelerating from 2.1 per cent in 2011.