Floods see confidence fall into negative territory

Interest rates could remain on hold for longer than expected, with business confidence falling into negative territory in December amidst corporate concern about the impact of the Queensland floods.

According to NAB’s Monthly Business Survey, business confidence fell nine points to negative three points in December; the first negative reading since the height of the global financial crisis in 2009.

The report states: “Confidence collapsed in mining, and fell heavily in transport and utilities, wholesale, construction and manufacturing.”

The report reveals mining and wholesale had the lowest confidence levels in December, each with a reading of minus 24 points.

“The worsening January situation in Queensland mining and transport may explain the sharp decline in confidence in mining, transport and utilities, wholesale, construction and manufacturing,” it says.

Even by removing the Queensland component from the survey, national business confidence barely scraped into positive territory, with an index reading of one index point.

Manufacturing also took a hit in January, with the Australian Performance of Manufacturing Index – released by the Australian Industry Group and PricewaterhouseCoopers – revealing the sector contracted for the fifth consecutive month.

The PMI in January was 46.7 points, up 0.4 points but remaining below the critical 50-point level.

According to AIG chief executive Heather Ridout, the continually poor performance of the manufacturing sector reflects the “complex nature” of the economy.

“Consumers and businesses are cautious and there is a structural squeeze on the sector arising from the resources boom and related strength of the dollar. The immediate outlook is not encouraging,” Ridout says.

The RBA yesterday announced it would keep the official interest rate at 4.75%, with governor Glenn Stevens citing the Queensland floods as having a “temporary adverse effect on economic activity and prices”.

Stevens said in a statement the RBA will continue to assess the effects of the floods, and the subsequent recovery, when considering monetary policy.

As Queensland struggles to recover in the aftermath of the floods, it must also prepare for the onset of Cyclone Yasi, which has been upgraded to a category five.

Cyclone Yasi is expected to be even more devastating than its predecessor Cyclone Larry, which caused $1.5 billion in damage in 2006.

It is expected to smash into the coast near Cairns tonight, with furious winds, torrential rain and floods adding to Queensland’s already massive damage bill. Most businesses in Cairns have already closed down.

Communities between Port Douglas and Townsville are being warned of a severe storm tide, with the Bureau of Meteorology stating Cyclone Yasi poses an “extremely serious threat” to life and property within the warning area.

“This impact is likely to be more life threatening than any experienced during recent generations,” it says.