Australian business conditions experienced a significant decline in November, reaching their lowest point since the height of the pandemic. This downturn, reflected in the National Australia Bank (NAB) survey, signals a weakening economic landscape across multiple sectors.
The NAB’s business conditions index plummeted 5 points to +2 in November, marking the weakest performance since late 2020. Business confidence also took a substantial hit, falling to -3 and erasing the gains seen in October. This decline in confidence underscores the challenging trading conditions businesses are currently facing.
Key indicators within the survey paint a bleak picture. Sales dropped sharply by 8 points to +5, profitability decreased by 6 points to -1, and employment intentions edged down 1 point to +2. These figures suggest a broad-based slowdown in economic activity.
NAB Chief Economist, Alan Oster, noted the persistence of below-average confidence levels and highlighted the ongoing weakness in the goods sector, particularly in retail and manufacturing. In contrast, some service sectors, including recreation & personal services and finance, business & property services, have managed to maintain relatively stronger performance.
This widespread decline in business activity follows a lackluster performance in the third quarter, characterized by subdued household consumption due to rising borrowing costs. The discouraging results raise concerns about the overall health of the Australian economy.
Coinciding with the release of the NAB survey, the Reserve Bank of Australia (RBA) concluded its December policy meeting. While widely anticipated to maintain the current cash rate at 4.35%, the weakened economic data may influence future monetary policy decisions.
The NAB survey also tracked cost pressures, which remained relatively stable in November. Retail prices, however, showed signs of moderation, slowing to a quarterly pace of 0.6% compared to 1.1% in October. Input costs saw a slight increase to 1.1%, while labor costs remained steady at 1.4%. This data comes on the heels of a significant drop in consumer price inflation to 2.8% in the September quarter, largely attributed to temporary government rebates on electricity bills. Whether this easing of inflationary pressures will be sustained remains to be seen.
In conclusion, the significant downturn in Australian business conditions and confidence signals a concerning economic slowdown. The weakness in key sectors like retail and manufacturing, coupled with persistent below-average confidence, poses challenges for the Australian economy. While cost pressures show some signs of easing, the overall economic outlook remains uncertain.
