Business confidence tumbles over concerns on global and domestic economic growth: NAB

Business confidence took a tumble in the fourth quarter, according to NAB, as concerns about global and domestic economic growth mounted, but a recession is not seen as a certainty.

Business confidence took a tumble in the fourth quarter as concerns about global and domestic economic growth mounted, says NAB. Picture: NCA NewsWire / Damian Shaw

Business confidence took a tumble in the fourth quarter as concerns about global and domestic economic growth mounted, but this was balanced by strong ­business conditions and a rosy outlook for key indicators such as employment.

The latest NAB quarterly business survey also found that supply-side constraints remained tight, with about 90 per cent of firms reporting availability of ­labour as a constraint on output and about half reporting availability of materials as a constraint.

Cost pressures were also still ­elevated, although labour and mat­erials cost growth eased slightly from the third quarter. Underlying wage indicators edged down slightly after peaking in the third quarter, according to NAB, but wage costs remain the top issue affecting confidence.

The NAB quarterly health check on the state and sentiment of the business community released on Thursday found that business conditions eased five points in the fourth quarter to 18 index points, but business confidence was down nine points to -1 index point as confidence turned negative in most industries. Confidence remained positive in transport and utilities, and recreation and personal services.

By state, NAB said confidence fell negative in Victoria and Queensland and was down to zero in NSW and Western Australia, but improved in South Australia and Tasmania.

“Conditions remained strong in the fourth quarter but eased a little from the highs seen earlier in the year, and indeed the monthly survey indicates this easing continued in December. In addition, confidence fell more clearly as concerns about the economic outlook grew stronger,” NAB chief economist Alan Oster said.

“The final months of the year were characterised by concerns about recessions in key economies overseas, as well as an anxious wait for signs of consumers tightening their belts as higher rates flowed through to borrowers. Those concerns were clearly weighing on business confidence in the fourth quarter despite the fact that demand was holding up.”

Fears of a looming recession have been heightened in the wake of recent higher than expected inflation swirling through the economy, which many economists fear will push the Reserve Bank to push up interest rates when it meets next week. Businesses and consumers have faced monthly interest rate rises since May – although the RBA didn’t meet in January – and the rapid rise in rates could plunge the economy into a recession.

NAB found that expected business conditions had eased in the quarter but were still elevated at 18 index points on a three-month and 12-month horizon. Forward orders continued to soften but were still around the long-run ­average at seven index points.

“Despite the fall in confidence, leading indicators remain reasonable,” Mr Oster said. “Expected conditions over coming months have fallen somewhat but remain at strong levels, and forward orders were around long-run average levels in the fourth. That supports our view that, while the economy will likely soften considerably in 2023 … firms don’t see a major slowdown.”