Business conditions have weakened to the lowest level since the month after September 11 terror attacks, as firms battle tighter credit conditions and falling demand, a survey shows.
Meanwhile, business confidence levels have stuck the lowest point since the 1991 recession.
The findings of the National Australia Bank's (NAB) July business survey coincide with forecasts from the Reserve Bank of Australia (RBA) that domestic demand growth is moderating significantly.
According to the NAB survey, the index of business conditions fell in July by five points to minus five points - the weakest reading since October 2001 - the survey of 415 private-sector firms found.
The latest reading is 25 points below a peak reached in October 2007.
The business confidence reading for July remained at minus nine points for the second month in a row.
NAB chief economist Alan Oster said the report showed the Australian economy was slowing faster than predicted.
"It's an economy that has slowed very, very rapidly," he said.
"One of the big problems we've had is it's moving faster than we thought.
"It's not a very nice survey; that's essentially the short answer."
All three components of the business conditions measure - profitability, employment and trading - declined in July as higher interest rates hurt consumer confidence and demand, the report found.
"Put another way, on balance, firms view conditions as poor - with almost a quarter of firms experiencing poor/very poor conditions," the report said.
The profitability reading suffered the biggest fall of 10 points to hit minus nine index points.
The trading and sales measure fell by three points, to minus two, while employment declined by three points, to minus five.
Retail and recreational services firms were the worst off sectors in July on a trend basis.
The mining sector suffered the biggest decline, but Mr Oster said the Varanus Island gas plant explosion in Western Australia in June may have produced the poor result.
The RBA quarterly monetary policy statement, released on Monday, predicted that economic growth in calendar 2008 would fall to two per cent, from its earlier prediction of 2.25 per cent.
The central bank said there was scope for less restrictive interest rates, which has convinced economists the RBA could cut official rates by 25 basis points in September.
