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National Australia Bank’s (NAB) latest survey revealed that business conditions in Australia softened in January, with the service sector experiencing a slowdown. This led to a decrease in the index of business conditions to +6, just below its long-run average of +7. However, the measure of business confidence increased by 1 point to +1, following a 7-point rebound in December.

NAB’s chief economist Alan Oster noted that despite the survey’s findings, confidence remains weak due to ongoing pressures across the economy, including slowing growth and high cost growth. Business sales eased 3 points to +11, while both profitability and employment dipped 2 points to +5. Capacity utilization also picked up to 83.6% from 82.8%.

In terms of costs, the survey showed that quarterly growth in purchase costs edged up to 1.8% in January, while growth in retail prices rebounded to +0.9% from +0.5% in December. Oster mentioned that despite these price pressures remaining solid, they are expected to ease in early 2024 as the economy continues to slow.

The Reserve Bank of Australia (RBA) has responded to these economic conditions by raising interest rates to a 12-year peak of 4.35% in an effort to restrain inflation. The RBA also warns that another rate hike might be necessary, despite the slowing economy.

According to NAB’s survey results, Australian businesses have faced increasing pressure due to ongoing economic challenges such as slow growth and high cost growth. Despite this, some positive signs emerged from the service sector experience a slowdown.

Despite the decline in business conditions indexes, business confidence increased by one point following a seven-point rebound last month.

NAB’s chief economist noted that although confidence remains weak due to various factors such as inflationary pressures and global uncertainty, it is expected that interest rates will remain high for longer periods.

Furthermore, the RBA raised interest rates by an unprecedented amount since July last year with an aim of controlling inflationary pressures.

Finally, despite these challenges posed by rising interest rates and declining business conditions indices

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