Has business confidence fallen too far?

High interest rates. tight credit, record oil prices and shaky markets have chilled business confidence in Australia.

The results of the National Australia Bank’s quarter Business Survey put that beyond doubt.

They show, for example. that local business confidence is now at its lowest level in almost two decades.

As the bank, explains, in one of its headlines:”Business confidence falls to the lowest level since Australia was exiting the 1990 recession.”

But why?

The credit crunch is certainly dampening business spirits in Australia, as it is throughout the world.

But there is more on Australia’s economic horizons than that.

Australia’s iron ore and coal miners have just signed lucrative contracts with their Chinese and Indian customers.

But the business people, that the NAB surveyed, seem to be leaving that out of their calculations.

The Reserve Bank certainly isn’t.

Its governor, Glenn Stevens, is making no secret of the fact that he fears that the huge amount of money that these contracts will to pump into the Australian economy, over the coming year, will send inflation skywards.

Of course, as H.L. Mencken once said, bankers are always worried that someone, somewhere might be happy.

Oddly, though, the NAB, itself, seems to be discounting Australia’s bright export prospects, too.

It left its forecast for Australia’s growth in 2008 at 2.75 per cent, but cut its 2009 forecast by 0.5 per cent to just 2.25 per cent.

In its May budget, the Federal government forecast 2.75 per cent economic growth for Australia, this financial year.
It would have little, or no, hope of achieving the $22 billion budget surplus that it has forecast, if Australia’s economic growth falls sharply.

Indeed, it is not too much to say that sharply lower business confidence, itself, could seriously damage the government’s entire budget strategy.