Business confidence in Australia has taken a hit, with conditions falling below average levels. This suggests that high interest rates and a dim consumer outlook are weighing heavily on the corporate sector. According to a survey by National Australia Bank Ltd., business confidence dropped 4 points to minus 3 in May, after staying above zero since November. Meanwhile, business conditions decreased by 1 point to 6, also falling below their long-run average.
The survey revealed declines in conditions across various consumer-facing industries such as retail and recreation & personal services, while forward orders remained negative. However, capacity utilization remains above average and measures of cost and price growth increased during the month. NAB’s chief economist Alan Oster noted that the process of balancing supply and demand is still incomplete and warned that inflation is likely to rise gradually and unevenly.
The Reserve Bank of Australia has raised rates 13 times since May 2022, reaching 4.35% in an effort to curb inflation. These hikes have impacted consumer confidence as Australians face higher mortgage repayments. Business sentiment, which had been relatively strong during the tightening phase, is now starting to decline. Oster believes that the mixed signals in the survey results will prompt the RBA to keep rates unchanged as they navigate through contrasting risks.
Key data points from the survey include a 3-point decline in trading conditions and profitability, a 3-point increase in employment, and a 1-point rise in forward orders. Labor cost growth increased by 2.3%, purchase cost growth advanced by 1.9%, and the capacity utilization rate rose to 83.3%. Despite these challenges faced by the corporate sector, there are still signs of resilience and potential for growth in the future.
Overall, this shift in business confidence highlights concerns about inflationary pressures on businesses as well as consumers facing higher mortgage repayments due to rising interest rates.
In summary, Australia’s business confidence has slipped into negative territory while business conditions have fallen below average levels according to NAB’s survey results for May
