Business confidence in Australia has taken a hit, with conditions declining below the average level. High interest rates and a negative outlook from consumers are contributing to this trend. A National Australia Bank Ltd. survey found that business confidence fell 4 points to minus 3 after remaining above zero since November. Business conditions, which measure sales, employment, and profitability, decreased 1 point to 6 in May.
According to the survey results, most consumer-facing industries such as retail and recreation & personal services experienced declines in conditions. However, capacity utilization remains above average, indicating that the process of bringing supply and demand back into balance is ongoing. Cost and price growth measures also increased in May.
The Reserve Bank of Australia (RBA) has raised interest rates 13 times since May 2022 to combat inflation but has not seen a positive impact on consumer confidence yet. Australians are tightening their spending habits due to rising mortgage repayments, leading to a decline in business sentiment as well. NAB’s chief economist Alan Oster noted that the survey results reinforce the idea that inflation is likely to be gradual and uneven. He stated that the RBA faces conflicting risks when it comes to economic growth and inflation prospects.
Key data points from the survey include trading conditions and profitability declining by 3 points each while employment rose by 3 points. Forward orders increased by only one point to -6, still below the long-run average.
Labor cost growth increased by 2.3% in quarterly-equivalent terms, and purchase cost growth advanced by 1.9%. The capacity utilization rate also saw a slight increase to 83.3%. Given these conflicting risks, the RBA is expected to keep rates on hold for now while navigating through them.
In conclusion, business confidence in Australia has taken a hit due to high interest rates and negative consumer sentiment. Despite raising interest rates multiple times since May 2022, the RBA has not seen any positive impact on consumer confidence yet. The survey results suggest that inflation is likely to be gradual and uneven while facing conflicting risks when it comes to economic growth and inflation prospects.
