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Business conditions at three-year low

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AAP

2012-11-13

Australia's business sector has weakened further in the last quarter of 2012, with a survey showing conditions slumping to their lowest point in more than three years.

The National Australia Bank (NAB) monthly business survey, released on Tuesday, showed that conditions in October fell to minus five on the index, from minus three in September and zero in August.

It's now at its lowest point since May 2009.

Business confidence has also receded, falling to minus one in October, compared to zero in September. It was minus three in August.

NAB said the weakness in business conditions reflected below-trend growth in the domestic economy, and suggested lack of confidence was having an impact.

And it doesn't see a change in the near future.

"The subdued outcome largely reflected a significant weakening of conditions in wholesale, manufacturing and construction, which all reported worryingly weak activity levels in the month," it said.

"Consistent with the subdued level of business conditions in October, forward indicators of demand (especially forward orders) and employment remained well below average levels, pointing to little improvement in near-term activity."

Forward orders rose marginally, to minus five in October from minus seven the previous month.

NAB said the drop in business confidence was mainly prompted by global concerns, including a belief that US Federal Reserve and European Central Bank (ECB) economic stimulus measures had not solved those economies' wider problems.

It added that the Reserve Bank of Australia (RBA) decision in October to cut the cash rate a quarter of a percentage point, to 3.25 per cent, may have highlighted underlying concerns about the domestic economy.

"The cause of these rate cuts, including soft labour market conditions, fiscal tightening, the high Australian dollar and falling commodity prices may be of concern, keeping underlying confidence fairly subdued," it said.