Business confidence surged to its highest level in almost 6 years in August, sending a strong signal the economy continued to grow solidly in the third quarter while cementing the case for a rise in interest rates before the end of the year.
Business confidence jumped 8 points in August from July to an index reading of +18 points, its highest reading since October 2003 and well above its long run average levels, according to a monthly survey of businesses by National Australia Bank.
Business conditions rose 3 points in August to an index reading of +4 points, its strongest level since mid-2008, NAB said. The improvement was based on solid increases in both trading and profitability.NAB economists expect the Reserve Bank of Australia to raise its cash rate target in November by 25 basis points to 3.25%, making it one of the first major central banks to start withdrawing monetary stimulus in the wake of the global financial crisis.
"This better domestic outlook and much better confidence levels further erode the case for maintaining emergency lows in interest rates," said Alan Oster, chief economist at NAB.
The NAB data suggested domestic demand retained considerable momentum in the third quarter, defying expectations it would wane as the impact of economic stimulus faded. The improvement in business conditions will be assisted by renewed strength in the global economy with major Asian economies taking the lead, NAB said. Higher confidence levels are also likely to mean that prospective falls in business investment will be less than previously expected, NAB added.
The survey was conducted around Aug. 28, which predated the RBA's Sept. 1 board meeting where interest rates were left on hold. It also came ahead of news the economy grew a solid 0.6% in the second quarter from the first quarter.