Business confidence shatters in coronavirus shutdown, says NAB survey

NAB’s monthly business confidence index hit its lowest level on record in March.

Confidence among Australian businesses has hit its lowest level on record, NAB reports. Picture: Brendan Radke

NAB’s monthly business survey has confirmed a sudden and calam­itous collapse in corporate confidence in March as large sectors of the economy were forced into hibernation to contain the spread of the coronavirus.

“Business has essentially told us that trading conditions, profitability and employment all went backwards in a big way in the month,” NAB chief economist Alan Oster said.

The survey revealed intense pessimism among Australia’s business community.

NAB’s confidence gauge plunged to -66 points — the lowest on record — from -2 points in February. Businesses said they were markedly more nervous than during the depths of the GFC, when the index reached -30 points, and the early 1990s recession, when it fell to -20 points.

Companies also reported a sharp decline in operating conditions, with the index falling to -20 points, consistent with the depth of the GFC, but still shy of the last ­recession, when the gauge dropped to -40 points.

Economists agreed the report pointed to an imminent recession, with the forecasting community expecting a near 10 per cent plunge in GDP through the June quarter and a spike in the unemployment rate towards 10 per cent.

Citi chief economist Josh Williamson said “conditions will worsen, but the degree of rebound remains the key”.

“We expect to see the ‘worst ever’ headlines across a range of economic indicators in the coming months,” he said.

Mr Oster also warned that “as time passes and containment measures are kept in place it is ­likely that conditions will fall further as more businesses are impacted”. “There is significant risk that a blow to confidence of this magnitude for an extended period could lead to ongoing fallout in terms of employment growth and capital expenditure by business.”

Questions in the survey gauging forward orders and capacity utilisation also recorded their biggest ever monthly drops to reach what Mr Oster called “exceptionally low levels”.

“It is possible that we will see capacity utilisation fall further, given business had only just entered the shutdown phase at the time of the survey,” he said.

There was a sharp decline in confidence across all industries, with construction falling by almost 80 points, while other industries fell an average of 60 to 70 points. Cashflow deteriorated in the month, businesses told the survey, reflecting slowing sales or forced closures.

The government has committed to spending $215bn to cushion the blow from strict social isolation measures, which have included the temporary shuttering of “non-essential” businesses such as casinos and restaurants. Tourism and education, two of the country’s largest export sectors, have ground to a halt due to internal and international travel bans.

“It is important to note while the impact on the business sector has been dramatic, the policy response has been unprecedented in terms of speed and size,” Mr Oster said. “Our view is that these measures are unlikely to fully offset the impact of the containment measures in the near term, but will provide a very important offset to the economic fallout in the recovery.”