Australian business sentiment has turned negative for the first time in the past 12 months as more enterprises feel uncertain about the country’s economic outlook.
While negative sentiment was reported in many industries, manufacturing, construction, and retail led the downward trend with ten points falls.
At the same time, all states and territories except South Australia and Tasmania saw a decline in business confidence.
The November drop suggests that the ongoing interest rate hikes implemented by the Reserve Bank and the slowing global economy have caused more businesses to hold a pessimistic view of Australia’s economic health.
NAB economists said the confidence index tended to capture businesses’ concerns about economic conditions before the negative trends actually came to pass. They also mentioned the index often dropped below zero at the beginning of a downturn.
Therefore, a negative confidence reading suggests an economic slowdown is gathering momentum in the country.
Business Conditions Stay Strong
Despite a downward trend in confidence among domestic firms, business conditions remained robust as the corresponding index slipped slightly to +20 index points.In addition, capacity utilisation and forward orders indices–two indicators that tend to reflect the changes in economic conditions–both experienced insignificant drops during the month.
However, capacity utilisation was still higher than historical averages, which was likely caused by a competitive labour market and a lack of qualified staff.
“There was a slight softening across a number of industries, but the level of business conditions really still remains elevated across the board, including in key consumer-facing sectors such as retail and recreation and personal services, and across the states.”
Oster also noted that the disparity between business conditions and business confidence grew to a greater extent during November.
Inflation Continues to Impact Australian Businesses
Meanwhile, the NAB survey revealed that inflation continued to impact the Australian economy as businesses’ input costs and prices kept rising rapidly.Specifically, labour costs grew by three percent in the three months to November, while purchase costs increased by 3.9 percent.
Overall business prices climbed by two percent during the quarter, with retail prices growth reaching 2.9 percent.
Overview of Business Turnover in October
The NAB survey came as new data from the Australian Bureau of Statistics (ABS) showed that business turnover grew in nine of the 13 industries sampled in October.Electricity, gas, water and waste services saw the most significant growth at 2.5 percent during the month, followed by construction and wholesale trade at 1.8 percent.
“This rise has followed a period of volatility for wholesale energy prices.”
Lamb also said that the growth in construction was driven by continued investment in public infrastructure projects, while telecommunication goods and pharmaceutical sales were behind the increase in wholesale trade turnover.
Among the industries suffering a decline in turnover in November, arts and recreation services reported the sharpest fall at 3.9 percent.
In comparison, the average revenue of retail trade and transport, postal, and warehousing businesses decreased by 2.5 percent and 2.4 percent, respectively.
However, compared to the same time last year, all industries experienced growth in business turnover.