Businesses show surprising confidence despite inflation woes

A surprising number of Australian companies have indicated they are confident about the state of the economy despite inflationary pressures and high interest rates, which have caused many businesses to collapse in the past 12 months.

National Australia Bank, the country’s largest business bank, interviewed 700 small- and medium-sized enterprises and found 60 per cent planned to invest to grow their business next year – a positive signal for the economy.

Sixty per cent of businesses surveyed by NAB say they plan to grow their business in 2025. Credit: Penny Stephens

“We’re starting to see the emergence of a two-speed economy,” said Krissie Jones, NAB’s executive general manager for small business in her first interview since taking over the role a month ago.

“Some businesses are thriving, some businesses are struggling, but there’s a positive sentiment. The Australian economy, whilst it has been challenged, is really resilient and really impressively. These small business customers can adapt quickly.”

Although the economy is sluggish, with corporate insolvency rates in the last financial year jumping 40 per cent, inflation remaining sticky, interest rates staying high and unemployment slowly rising, business confidence is starting to grow, according to both NAB and the Commonwealth Bank of Australia.

Michael Vacy-Lyle, CBA’s head of business banking, said while retail and hospitality businesses were still struggling, companies with a turnover of between $5 million and $50 million were “very robust”.

“We need to remember they went into this cycle with very healthy balance sheets, a lot of cash deposits, very low gearings of debt,” Vacy-Lyle said. “They’re using their cash balances to support working capital and have started to borrow again. We’re honestly seeing some of the strongest pipelines of lending in that [cohort] we’ve ever seen.”

NAB’s business insights survey shows plans to step up investment was strongest in Queensland and Victoria, driven by the finance and insurance industries, as well as property and business services.

Jones said while businesses continued to find economic conditions difficult, they could see light at the end of the tunnel and were making plans to “springboard for that growth”.

Almost two-thirds of businesses planning to grow were looking to invest in hiring, retaining and training staff, with many focused on the latter two. With unemployment rising to 4.2 per cent in July and expected to peak at 4.6 per cent, according to NAB, employers were still expressing a desire to retain staff.

Dean Pearson, the head of behavioural and industry economics at NAB, said organisations were more likely to cut employees’ hours than making them redundant, fuelling concerns of rising underemployment.

“There’s no doubt that when unemployment rises, job mobility will be slow,” Pearson said. “They’ll be more concerned about keeping their job, and that gives employers more bargaining power that was diluted during the pandemic [when many employees were switching jobs and companies].”

NAB reported equipment finance to small business was up 11 per cent on the June quarter, while CBA this month said its lending balance in the 2024 financial year grew 11 per cent to $145 billion.

CBA’s business bank posted a cash profit of $3.8 billion, up 4 per cent. NAB will release its full-year results in November.

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