Business confidence hits lowest level since April 2020 following Iran war: NAB
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The news: NAB’s business confidence index in March took its second largest monthly fall to its lowest level since April 2020 following the outbreak of the Iran war.
The numbers: Business confidence fell 29 points, compared to February, to -29 index points.
Business conditions at +6 index points, just below the long run average of +7 index points. The employment indicator also rose 3 points to its highest level since July 2024. However, a 2 point fall in trading and 3 point fall in profitability more than offset the gain in employment.
Business conditions in the mining sector saw the biggest increase while wholesale saw the largest fall. Western Australia and South Australia saw business conditions pick up 17 points and 9 points respectively, while Victoria recorded the largest fall of 11 points.
Conditions across all regions are positive, except in Victoria, while confidence is negative across all regions.
Capacity utilisation lifted to 83.1% from 82.9% in February. Forward orders unwound their gains since the start of the year and fell 7 points to back below the long run average while capital investment fell 3 points but remains elevated.
Purchase cost growth lifted 3% in quarterly equivalent terms, doubling since February. Labour cost growth remained at 1.5%, product price growth lifted to 1.1% and retail price growth fell to 0.5%.
The context: The magnitude of the fall in business confidence was only previously seen in the Global Financial Crisis and at the start of the Covid pandemic.
Sectors that saw business conditions decline the most were those that are seeing direct impacts on costs and consumer demand from the Iran war, namely transport and utilities, construction and retail.
What they said: NAB chief economist Sally Auld said she’s “not really surprised by the direction of travel” in business confidence, which is “on par with what we saw back around 9/11”.
When considering the divergence between confidence and conditions, Auld said that looking over the last 25 years of data, “they don’t always move exactly month to month, but over the course of the cycle they do tend to move up and down together”.
“I guess what it tells you is that if that decline in confidence is sustained in coming months ... we will start to see softer business conditions.
“And if we see those, then that’s the indicator that would suggest to us that we are going to see softer GDP outcomes over the next 12 months.”
The source: NAB Business Survey March
