Australia’s businesspeople are still confident about the future despite the three-pronged impacts of the drought, higher interest rates and slowing domestic demand.

The NAB business confidence index rose two points to four index points for the March quarter, slightly below average historic levels, but higher than expected.

Jeff Oughton, NAB’s estimable Head of Australian Economics, said yesterday with an appealing sense of mild puzzlement: “NAB’s Business Confidence Index for the March quarter is up only two points to four points for the March quarter, which is just below average historical levels.”

“This is a surprising result, considering a slowdown in domestic demand, a severe drought, rising costs and higher interest rates, confidence of the majority of businesses has remained reasonable during the past few months,” he said today.

According to the National’s customers, SMEs in the mining and construction sectors are the most optimistic. Not surprisingly, agribusinesses expect a deterioration in business conditions in the March quarter. Some sectors of retailing and property services share this sentiment, but to a lesser extent.

With climate change continuing to hog the headlines, Henry confidently predicts that relevant researchers will soon be wallowing in money, and smart businesses will be grabbing their share.

The most recent measures of consumer sentiment also show elevated levels of confidence; the January Roy Morgan Consumer Confidence Rating jumped 6.5 points to a very positive 123.9.

In today’s Oz, Steve Lewis reminds us that this is an election year and it’s (again) mostly about the economy:

The economy remains the Coalition’s strong suit. Howard will portray himself and Peter Costello as the master blasters, a formidable economic duo who have taken the hard decisions to sustain national prosperity. This will be the core question posed to voters: why change to a riskier Labor outfit when Australia has enjoyed such spectacular wealth?

As we have pointed out, the Howard government starts the year with two major bits of economic luck – inflation for the December quarter declined and was below expectations, and some solid rain confirms expert opinion that the drought may soon be broken. This graphic shows the relatively high levels of both consumer and business confidence – if “it’s the economy, stupid”, Rudd and Co certainly face a uphill battle.

Read more at Henry Thornton.