Business confidence hits nine month high

Business confidence has jumped to its highest level in nine months as small businesses and retailers cheered Treasurer Joe Hockey’s second budget and another rate cut from the Reserve Bank.

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National Australia Bank’s closely watched confidence barometer bounced four points in May to its highest level since August 2014.

The upbeat reading reflected big pick-ups in the retail and wholesale sectors, as well as in finance, business and property services, though confidence in the mining sector fell sharply, NAB economists Alan Oster and James Glenn said.

Confidence had been buoyed by the Abbott government’s budget, which included a $5.5 billion support package for small business, as well as the RBA’s decision to cut the cash rate to a record low of two per cent.

“Confidence appears to have received a boost from interest rate cuts, better conditions and perhaps some relief over a more politically sellable budget compared to last year,” they said.

“Low interest rates continue to support the housing sector and while momentum has slowed recently, housing and business credit continues to grow at a robust pace.”

The government’s small business package allows businesses with a turnover of less than $2 million to immediately write off the value of assets worth up to $20,000.

It also delivers a 1.5 per cent tax cut to incorporated companies and a five per cent tax discount to unincorporated businesses.

AMP chief economist Shane Oliver said the jump in confidence could be undone if the government has any trouble getting its budget through the senate.

Business confidence slumped in the second half of 2014 due in part to the poor reception to the government’s first budget, much of which stalled in the senate, Dr Oliver said.

“It remains to be seen whether it (the lift) will be sustained or not, we have seen several bounces in confidence over the last few years and they haven’t been sustained,” he said.

NAB’s survey also showed an improvement in business conditions, with its index lifting three points to its highest level since October.

Mr Oster and Mr Glenn pointed to improved conditions in the retail sector, following subdued retail sales data for the first three months of 2015.

But the bank remains relatively downbeat on the outlook for the economy, given the weakness in the resources sector.

“The big picture is still one where the domestic economy is struggling to offset the impact of sharply lower mining investment.”