Calls are mounting for a Reserve Bank interest rate cut on Tuesday despite new figures pointing to a very favourable business environment for Australian firms.
While both business confidence and conditions went downhill in April, according to figures in the National Australia Bank's business survey on Monday, conditions remain well above average levels for the past year.
"With consistently good results like these from our survey it is difficult not to have a degree of confidence in the near-term outlook," NAB chief economist Alan Oster said.
However, subdued inflation pressures in the survey and woefully weak first quarter consumer prices could force the Reserve Bank's hand.
March quarter core inflation hit the lowest level since the RBA began inflation targeting and is likely to undershoot in the near term, NAB said.
"The RBA has scope to further cement the non-mining recovery with an additional cut to the cash rate at tomorrow's meeting, although it is likely to be a close call," the survey report said.
The central bank will most likely slash the cash rate to a new record low of 1.75 per cent on budget day, NAB said.
Service industries remained the best performers in April as the benefits of lower oil prices and earlier falls in the Australian dollar continue to flow through.
"Solid results for manufacturing and transport, as well as a bounce-back in retail, are all reassuring," Mr Oster said.
Confidence levels ebbed lower to be marginally below the long-run average.
"This was still a reasonable outcome given the added uncertainties around the global economy and the upcoming federal budget and election," Mr Oster said.
Leading indicators from the survey were somewhat mixed in April, with forward orders lifting back into positive territory while NAB's measure of capacity utilisation eased back.
"However, the trend remains very much a positive one, which is starting to encourage firms to invest, and is supporting demand for labour," Mr Oster added.
