Sharp Decline in Business Activity
Australia’s business activity fell to its lowest level since the pandemic in November, according to the latest survey by the National Australia Bank (NAB). Challenging trading conditions in the manufacturing and retail sectors led to a significant drop in business confidence. The NAB Business Conditions Index fell by 5 points to +2, the weakest reading since late 2020. Meanwhile, the more volatile Business Confidence Index plummeted from +5 in October to -3 in November, erasing prior gains.
Decline in Sales and Profitability
The survey revealed that the sales index dropped sharply by 8 points to +5 in November, while profitability sank by 6 points to -1. Employment intentions also dipped by 1 point to +2. NAB Chief Economist Alan Oster noted, “While we were optimistic last month, the trend of below-average confidence remains intact.” He added that conditions in the goods sector remain weak, though service industries like recreation, personal services, finance, business, and property services are performing relatively well.
Retail and Manufacturing Sectors Hit Hardest
Activity levels declined across all industries, with retail and manufacturing reporting the worst conditions. NAB’s findings suggest that Australia’s economy has struggled to rebound following a weak third quarter, where household consumption faced significant pressure due to high borrowing costs.
Cost Pressures and Inflation Trends
Despite easing inflationary pressures, cost metrics indicate ongoing challenges. Retail prices slowed to a quarterly growth rate of 0.6% in November, down from 1.1% in October. However, input costs edged up to 1.1%, while labor costs held steady at 1.4%.
Official consumer price inflation (CPI) data for the third quarter showed a significant slowdown to 2.8%, largely driven by temporary government subsidies for electricity bills. However, this downward trend may be short-lived, as broader cost pressures persist.
Monetary Policy and Outlook
The Reserve Bank of Australia (RBA) is expected to conclude its December policy meeting with no changes to the current cash rate of 4.35%. The rate has remained steady for the past year, as policymakers assess the impact of previous hikes on the economy.
Conclusion
The persistent weakness in business confidence and economic conditions highlights the challenges facing Australia’s economy. While the retail and manufacturing sectors continue to struggle, service industries provide some support to overall activity. Investors should monitor upcoming economic data and policy developments to better understand the trajectory of Australia’s economic recovery.
