Australian August Business Confidence Jumps to the Highest in Four Months

Australian business confidence jumped in August to the highest level in four months, suggesting the economy is avoiding fallout from weaker global growth and increasing the central bank’s scope to resume rate increases.

The confidence index rose to 11 points from 2 points in July, according to a National Australia Bank Ltd. survey of more than 530 companies from Aug. 24 to Aug. 31, and released in Sydney today.

The first gain in business sentiment in six months adds to evidence including increased hiring and exports that support central bank Governor Glenn Stevens’ view of an economy expected to strengthen after growing the most in three years last quarter. National Australia Bank raised its forecast for economic growth in 2010 to 3.25 percent from a previous prediction of 3 percent.

“As the economy gathers speed in 2011, the case for rate rises will become more compelling,” said Alan Oster, chief economist at National Australia in Melbourne. The Reserve Bank of Australia will boost the benchmark lending rate by a quarter percentage point each quarter in 2011, bringing the rate to 5.5 percent by the end of the year, he said.

There is also a risk the central bank could start raising rates again as early as November, Oster said.

The Australian dollar rose to 93.38 U.S. cents at 11:31 a.m. in Sydney from 93.36 cents just before the report was released. The two-year government bond yield was unchanged at 4.63 percent.

Election Uncertainty

The rebound in business sentiment was recorded amid uncertainty about the outcome of Australia’s Aug. 21 federal election, which left neither the ruling Labor party nor opposition leader Tony Abbott with enough seats to form a majority. Prime Minister Julia Gillard won agreement last week to form a government with the help of three independent lawmakers and a Greens party member.

Australia’s gross domestic product surged 1.2 percent in the second quarter, a report showed this month. The rise was the most since 2007, and confounded the median of 23 estimates in a Bloomberg News survey for a 0.9 percent increase.

National Australia’s business conditions gauge, a measure of hiring, sales and profits, was unchanged at 5 points in August, today’s report showed.

“Conditions improved in manufacturing, recreation and construction, but deteriorated in mining, finance, transport, wholesale and retail,” Oster said.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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