Flood-hit economy struggling to recover from slowdown

National Australia Bank (NAB) also warns in its monthly business survey that the multi-speed economy is persisting, with strength in mining in stark contrast to the weakness in retail, manufacturing, wholesale and construction.

The NAB survey for May showed business conditions fell four points to be plus one, while the confidence index shed one point to be plus six.

The conditions index is only slightly above the relatively weak levels recorded in February, immediately following the flooding that ravaged the eastern coast of Australian.

This has left the condition index five points below the longterm average level, NAB said.

Most industries experienced some deterioration in conditions in May, with the big declines recorded in transport and utilities, wholesale and retail "deteriorating heavily", the bank said in a statement.

In contrast, mining conditions improved sharply to the strongest in the survey's history at plus 50 points, suggesting Australia's two-speed economy was persisting, NAB said.

The report said that the weakness in conditions appeared to have dampened business confidence levels, though confidence remains quite varied across sectors.

"The high Australian dollar may be eroding sentiment in manufacturing and wholesale," NAB said.

The Australian dollar reached 110.11 US cents on May 3, a record high since the currency was floated in December 1983. The local unit is now trading back around the 106 US cent level.

NAB also reported that forward orders fell in May and continued to contract.

Capacity utilisation was marginally lower in May but remains above the longterm average, suggesting a probability of further tightening in the labour market.

On Thursday, the Australian Bureau of Statistics reported that Australia's unemployment rate stayed at a two-year low 4.9 per cent in May for the third month in a row.