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| National Australia Bank's (NAB) monthly business survey found that the more positive outlook was yet to translate into improved trading conditions. | ||
But the National Australia Bank's (NAB) monthly business survey also found that the more positive outlook was yet to translate into improved trading conditions.
The survey's measure of business confidence rose 12 index points to minus-two points in May.
But the measure of business conditions fell four index points to minus-14 points.
A reading below zero indicates pessimists outnumber optimists.
NAB chief economist Alan Oster said the lift in business confidence reflected the rise in global share markets, higher commodities prices and a narrowing of spreads on credit markets.
"These stronger market trends are in line with the incoming economic data which suggest that the global economy could be about to stabilise after the steepest decline in activity seen in the postwar period," Mr Oster said.
The business confidence index had reached minus 30 points in early 2009, when Mr Oster said businesses were "really worried about armageddon" and overreacted.
Mr Oster said businesses could be making the same mistake this time, but on the other side of the equation.
"My judgement would be that business is getting a little bit more confident than they probably warrant, just like a few months ago when they were way too pessimistic relative to the actual outcomes," Mr Oster said.
"So I think they have got a little bit over-excited on the upside.
"Confidence can be a leading indicator, but it also can be misleading in the sense that what really matters is, if you get a change in confidence, then that (must be) sustained."
Mr Oster said further stimulus from the federal budget, particularly spending directed at infrastructure, also had contributed to the lift in business confidence.
Despite the more optimistic outlook, actual business conditions remained well into negative territory.
Firms remained reluctant to build up stocks and instead continued to cut inventories across the manufacturing, construction, retail and wholesale sectors.
Capacity use also remained weak and wages recorded a slight fall in the three months to May, the report found.
The survey's results implied a flat demand outcome and a moderate fall in June quarter gross domestic product (GDP).
"There is no clear evidence that the tentative mood has receded from business plans," the report said.
Mr Oster said he expected the nation's jobless rate to reach eight per cent by "late 2010".
"The key message from the survey on employment is that we should expect further rises in the unemployment rate," Mr Oster said.
NAB upgraded its forecasts of Australian economic growth after last week's release of better-than-expected March quarter national accounts figures.
It now expected GDP to fall by 0.5 per cent in the 2009 calendar year, an improvement from its previous estimate of a one per cent contraction.
The bank's forecast for GDP in 2010 remained unchanged at growth of one per cent.
"Our forecasts reflect further weakness in business investment owing to ongoing balance sheet repair and sluggish business conditions," Mr Oster said.
GDP rose by 0.4 per cent in the March quarter, according to figures from the Australian Bureau of Statistics (ABS).
On interest rates, Mr Oster said the Reserve Bank of Australia (RBA) would require weak economic data to cut interest rates further.
"We now see the RBA in data watching mode, having delivered the bulk of the emergency cuts," Mr Oster said.
He expected the RBA to deliver two more cuts to the cash rate, in November and December this year, in response to "further falls in GDP and sharp rises in unemployment".
The RBA left official interest rates on hold at a 49-year low of three per cent at this month's board meeting, on June 2.
The survey was conducted between May 25 and May 29 and included responses from 560 firms in the non-farm sector.
(AP)
reporter
Park Sae-jin
swatchsjp@ajunews.com