Australia’s Business Confidence surged to the highest in nearly six years in August according to the National Australia Bank. The bank abandoned its previous forecast calling for the economy to shrink this year, now saying output will gain 0.6% in 2009, while chief economist Alan Oster said the outcome “clearly points to continuing strong growth in demand in the third quarter.” Oster added that sharp improvements in confidence “erode the case for maintaining emergency lows in interest rates.” Details of the report are less encouraging than the headline figure, however. The upswing looks to have been driven by a jump in the Profitability sub-index, which began to rebound along with industrial commodity prices (Australia’s chief export sector) at the beginning of the year. Commodities could reverse lower in the months ahead as China, Australia’s largest trading partner, begins to rein in expansionary economic policy. This would reflect detrimentally on profitability and send the overall confidence metric lower. Indeed, sub-indexes tracking Forward Orders and Export Sales both declined in August for the first time in three months.
