By Jacob Greber
April 13 (Bloomberg) -- Australian business confidence held in March close to its highest level in almost eight years as companies reported a surge in forward orders that suggests the economy is weathering higher central bank borrowing costs.
The confidence index slipped 3 points from February to 16, according to a National Australia Bank Ltd. survey of more than 400 companies between March 25 and March 31 released in Sydney today. The bank’s business conditions gauge, a measure of hiring, sales and profits, rose 5 points to a two-year high of 13.
Robust business sentiment was a key reason central bank Governor Glenn Stevens continued this month a series of world- leading interest rate increases to prevent a surge in inflation. National Australia today raised its forecast for gross domestic product growth this year to 3.5 percent from a previous prediction of 3 percent and said GDP is expected to expand 4.25 percent in 2011.
“The key drivers are faster than previously expected business investment, stronger consumption spending and export growth,” said Alan Oster, chief economist at National Australia in Melbourne. “This environment is clearly more challenging for inflation with faster wages growth, as skill shortage issues re- emerge, and the output gap reversing quickly.”
The Australian dollar traded at 92.50 U.S. cents as of 11:34 a.m. in Sydney from 92.47 cents just before the report was released. The two-year government bond yield was unchanged at 4.94 percent.
Governor Stevens cited a forecast surge in exports of raw materials such as iron ore and coal, as well as energy from projects such as Chevron Corp.’s Gorgon gas project in Western Australia, after boosting Australia’s benchmark overnight cash rate target on April 6 by a quarter percentage point to 4.25 percent, the fifth such move since early October.
“The situation where we needed historically low interest rates has passed,” central bank Assistant Governor Guy Debelle told a Senate committee hearing in Sydney yesterday. “So we’re moving back to something around average levels, which is not far from where we are now.”
GDP grew in the fourth quarter at the fastest pace in almost two years, rising 0.9 percent from the previous three months. The economy expanded 2.7 percent from a year earlier.
Companies such as BHP Billiton Ltd. have already signaled that rising demand for resources threatens to deepen a skills shortage in regions such as Western Australia, where most of the nation’s iron ore for export is mined.
“Wage pressures continue to build,” said Oster, and will “need to be watched carefully in the period ahead.” Payroll costs increased 1.1 percent in the three months through March, the fastest pace since October 2008, today’s report shows.
Employers added 19,600 jobs last month, keeping Australia’s unemployment rate at 5.3 percent, a report showed last week. That’s almost half the level of the U.S. and Europe, where the jobless rates are 9.7 percent and 10 percent respectively.
“Perhaps the most marked development has been the surge in mining confidence as Asian economies rebound and commodity prices surge,” said Oster.
That echoes comments by Governor Stevens last week, when he said income from exports is rising, “adding to incomes and fostering a build-up in investment in the resources sector.”
Reserve Bank of Australia policy makers will boost borrowing costs again in May, August, September and December, National Australia predicts.
A gauge of forward orders jumped 4 points to 10, capacity utilization rose to 82.1 percent from 80.7 percent, today’s report shows.