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James Thomson is the editor of BRW. Previously he was editor and publisher of SmartCompany and a senior editor at Business Spectator. He writes regularly on Australia's wealthiest entrepreneurs and has deep expertise in small business and the mid market.

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Business conditions hit weakest level in four years but confidence steady

Published 09 April 2013 11:44, Updated 10 April 2013 07:42

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Business conditions hit weakest level in four years but confidence steady

Business confidence was steady in March, but conditions for manufacturers deteriorated, NAB’s business conditions survey has found. Photo: Max Mason-Hubers

Recent improvements in the performance of the retail and manufacturing sector appear to have been short lived, with NAB’s monthly survey of business conditions and confidence showing conditions have fallen to their lowest level in four years.

But business confidence remained steady in March, suggesting the latest political wrangling over the Labor leadership and the banking crises in Cyprus have largely been shaken off by the business community.

The survey showed falls in trading and employment conditions across the economy while profitability conditions remained steady. Business conditions deteriorated sharply in manufacturing and retail, with trading conditions profitability falling. The pressure on the mining sector continues to rise, with softer commodity prices weighing heavily on conditions.

However, the construction sector has picked up in recent months and the services sector, while still subdued, continues to perform better than the rest of economy.

Some stimulus in order?

NAB’s chief economist Alan Oster says the readings on business conditions could force the Reserve Bank of Australia (RBA) to cut rates again.

“Overall, the snap back in activity in the consumer-dependent sectors and general softness elsewhere suggests the economy may require more stimulus via either monetary or fiscal policy to regain its growth momentum.”

Business confidence actually rose slightly last month, although it remains well below the long-term average.

Oster says confidence is worst in mining, reflecting the end of the period of big investment in mining projects.

The forward indicators in NAB’s survey suggest there is little prospect of immediate improvement in business conditions.

Forward orders improved slightly but remain well below average levels, while Oster described reading on capacity utilisation as being at “GFC levels”.