More Businesses Lose Confidence in Australia’s Economic Prospects

More Businesses Lose Confidence in Australia’s Economic Prospects
Shoppers visit the Myer Department store in Sydney, Australia, on Dec. 26, 2021. Wendell Teodoro/Getty Images
Alfred Bui
Updated:

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.

According to the latest National Australia Bank (NAB) business survey, the business confidence index dipped from zero to minus four index points in November.

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.

However, the economists noted that while negative confidence showed up from time to time in Australia, poor economic conditions sometimes did not appear, as demonstrated in the 2008 global financial crisis and the COVID-19 pandemic.

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.

Shoppers visit the David Jones Department store in Sydney, Australia, on Dec. 26, 2021. (Wendell Teodoro/Getty Images)
Shoppers visit the David Jones Department store in Sydney, Australia, on Dec. 26, 2021. Wendell Teodoro/Getty Images
“Conditions continued to hold up through November,” NAB Chief Economist Alan Oster said.

“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.

“The gap between current business conditions and business confidence is now at a record level in the history of the survey–with the exception of March 2020–pointing to heightened concerns about the resilience of the economy in the period ahead as inflation and higher rates begin to weigh on consumers.”

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.

Oster said while the survey suggested that substantial levels of consumer spending propped up the economy in November, businesses had become increasingly pessimistic about the future as they expected a slowing global economy and a period of weaker consumption caused by inflation and higher interest rates.

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.

“In October, turnover for the Electricity, gas, water and waste services industry was 16.8 percent below the peak in August, but 28.2 percent higher compared to the same time last year,” ABS head of business indicator statistics Kate Lamb said.

“This rise has followed a period of volatility for wholesale energy prices.”

A man wearing walks along a street in the central business district of Sydney in Australia on June 25, 2021. (Saeed Khan/AFP via Getty Images)
A man wearing walks along a street in the central business district of Sydney in Australia on June 25, 2021. Saeed Khan/AFP via Getty Images

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.

Alfred Bui
Alfred Bui
Author
Alfred Bui is an Australian reporter based in Melbourne and focuses on local and business news. He is a former small business owner and has two master’s degrees in business and business law. Contact him at [email protected].
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