Businesses show some resilience in the face of Covid lockdowns: NAB survey

Australian businesses showed some resilience during the Covid lockdowns last month, according to NAB’s monthly business survey.

Businesses showed some resilience during Covid lockdowns last month, according to the NAB’s monthly business survey. Picture: David Crosling/NCA NewsWire

Australian businesses showed some resilience in the face of Covid lockdowns last month, according to NAB’s monthly business survey.

Business conditions and confidence improved slightly, but the latter remained well into negative territory. It reflected a sharp deterioration in Victoria and more generally, the degree of uncertainty in the economy as lockdowns persisted and the timing of a full reopening was unknown.

After plunging from a net balance of 26 points to 10 points in July as lockdowns hit in NSW and VIC, business conditions rose to 14 points in August. Trading conditions rose to 19 points from 12 points, and profitability rose to 15 points from 5, but employment conditions fell to 9 points from 11.

Business confidence rose to -5 points in August, after plunging from 10 points to -7 points in July.

Importantly, business conditions were still elevated and remain well above average in all states.

NAB chief economist Alan Oster said that while there has clearly been some deterioration in confidence and conditions, as well as capacity utilisation, since early 2021, it has not been as severe as early 2020 despite the severity and duration of lockdowns in the two largest states.

In addition, forward orders are back to being well above average and capex despite pulling back from the levels seen in early 2021 is around average,” he added.

“While lockdowns in NSW and Victoria and shorter disruptions across other states continue to impact businesses, trading and profitability conditions improved slightly in August,” Mr Oster said.

“Overall conditions improved 4 points, indicating some resilience in the economy under difficult circumstances.”

Mr Oster said the resilience of the survey during the current episode likely reflects the healthy momentum in the economy before the lockdowns, ongoing fiscal and monetary support as well as greater certainty that the lockdowns will end as vaccines roll out.

“While we expect a large hit to activity in Q3, the survey supports our view that once restrictions are eased, activity will rebound,” he said. “Beyond the rebound, healthy business investment and hiring will need to be maintained to see ongoing growth in the economy – and for now, investment intentions and job vacancies continue to point to ongoing growth.”

Conditions improved noticeably in NSW as well as in South Australia in August – two states that experienced sharp declines the previous month – but deteriorated somewhat in QLD and TAS, while conditions in VIC and WA were largely steady.

Confidence remained low or negative in NSW, VIC and QLD, and across most industries, with confidence declining even in mining and construction after these had previously held up.

Confidence improved in NSW but declined in VIC, leaving both states deep in negative territory.

“Confidence remained at significant lows in August, reflecting the heavy toll of restrictions,” Mr Oster said.

“The two largest states moved in opposite directions, with confidence improving somewhat in NSW as the vaccine roll out picked up pace but deteriorating in Victoria as lockdowns were extended.”

Still, the falls in confidence have not been as severe as those seen in 2020, with the availability of vaccines providing some reason for optimism, Mr Oster added.

Forward orders rebounded from negative territory, up 11 points to 6 index points for the month, led by the retail, wholesale, and transport and utilities industries.

Capacity utilisation softened further to 80 per cent, but has not deteriorated as significantly as early 2020 while reported capex was steady at 7 points.

“Forward orders rebounded in August after a very weak result in July, and capex also remains at a relatively solid level,” Mr Oster said.

“These are encouraging signs that businesses may see some light on the horizon.”

While noting that the sustained lockdowns now in place will cause a “large hit” to the economy in the quarter, Mr Oster said the resilience seen in the August survey results suggest that the policy support in place, and lingering momentum from earlier in the year, are continuing to support the economy.

“There are also signs that progress on the vaccine rollout and growing certainty that lockdowns will end in coming months are providing a reason for optimism,” he said.

“The economy remains well positioned to rebound once restrictions are eased.”