The National Australia Bank (NAB) cut on Tuesday its growth forecast for Australia to 2.9 per cent from 3.2 per cent for 2012.
The bank cited the China economic slowdown, weather disruptions and mining work stoppages as the main reasons behind the weaker growth outlook. NAB economists added that persistent weakness in sectors outside mining negates the small growth expected to be registered in the broader business sector.
NAB also hiked its unemployment rate forecast to 5.4 per cent from previous outlook of 5.3 per cent. However, the bank said 2013 would be a better year with the country's gross domestic product likely to expand by 3.7 per cent.
Although NAB's monthly business survey also found that business confidence and conditions slightly improved in March based on feedback from 400 companies, the recovery was from a very low base.
It explained the two- to three-point gain in business confidence to improvements in the U.S. and European economies as well as the effect of a lower Australian dollar which boosted export income.
As expected, mining registered the highest reading with an index of +36 points, followed by transport and utilities with +28. On the extreme end were retail with -15 and construction -6.
In another paper, NAB warned of the continuous decline of the construction sector despite a report by the Australian Industry Group and the Housing Industry Association that the construction index registered a 0.6 point growth to 36.2 points in March. NAB pointed out that the index remains below the 50-point benchmark that demarcates expansion and contraction.
It is for the 22nd straight month that the construction industry has been contracting, with the residential and commercial construction subsectors the hardest hit due to low demand and weak conditions to cause the house building index to plummet to 30.3 which is the lowest level in half a year.