Business owners are relying on another interest rate cut to help offset the worst trading conditions in 14 years, according to the Australian Chamber of Commerce and Industry.
The ACCI said another rate cut could come as soon as February 7, when the Reserve Bank holds its next meeting, if inflation data for the December quarter showed price growth is subdued.
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But according to the Australian Bureau of Statistics, Australia’s consumer price index was unchanged in the fourth quarter, despite economists’ expectations it would rise 0.2%.
The weighted median core CPI rose 0.5% in the fourth quarter from the third quarter, and rose 2.6% from a year earlier.
The trimmed mean CPI rose 0.6% in the fourth quarter from the third quarter, and rose 2.6% from a year earlier. Seasonally-adjusted CPI rose 0.2% on quarter and 3% on year.
According to Greg Evans, ACCI director of economics and industry policy, the economy is in need of further interest rate cuts, referring to ACCI’s latest survey of investor confidence.
Evans said the survey shows mainstream business is under “significant pressure”.
The ACCI index measuring businesses’ views came to just 48.2 points, below the 50-point level that separates growth from contraction.
“Businesses’ view of their own conditions are at their lowest level since the survey began some 14 years ago, in 1998,” Evans said.
Treasurer Wayne Swan believes Australia’s economic growth prospects remain solid, responding to comments made by International Monetary Fund managing director Christine Lagarde.
In a speech made earlier this week in Berlin, Lagarde said Europe needs to take further action to deal with the debt crisis.
Swan said the crisis is clearly having a substantial impact on the global economy, so no country can expect to be immune, including Australia.
But Swan said Lagarde’s comments are also a reminder that growth in the Asia-Pacific region is healthier than Europe’s, and that Australia’s growth prospects are solid.
“Just as the government got the big calls right when the global recession hit, we have been ahead of the curve as global conditions have taken another turn for the worse,” he said.
However, former Liberal treasurer Peter Costello has warned that Australia risks suffering the same fate as Europe if the government doesn’t start to curb spending.
“If the journey keeps continuing – at the rate in the years ahead that it did in the last three or four years – it won’t be too long before we start experiencing European-type problems,” Costello said.
“This is a realisation that I don’t think [Prime Minister] Julia Gillard has yet to come to grips with, and I don’t think the government has come to grips with.”