Coronavirus: Business recovery was up … until new wave

Business confidence completed a remarkable recovery last month and is now back to pre-pandemic levels.

NAB chief economist Alan Oster says he was surprised by the strength of the survey result.

Business confidence completed a remarkable recovery last month and is now back to pre-pandemic levels, even as more timely consumer survey data revealed households have become more cautious in recent weeks in the wake of Melbourne’s second COVID-19 outbreak.

Confidence rose by a sharp 21 points in June to just above zero — indicating the proportion of optimists and pessimists was broadly balanced among surveyed firms — as states began reopening their economies.

The confidence index has surged by 66 points since a record­ low in March.

NAB chief economist Alan Oster said he was surprised by the strength of the survey result.

Respondents also reported a marked improvement in operating conditions last month — lifting 17 points to -7 points — but conditions still remained “very weak”, at around levels of previous recessions, Mr Oster said.

Conditions reached a nadir of about -35 points in April. “While the rebound in confid­ence is encouraging, the survey suggests that activity has some way to go before the business sector makes a full recovery,” Mr Oster said.

“The services sector continues to show the weakest outcomes, but of some concern are construction and manufacturing which also remain weak, pointing to second-round impacts­ on industries that were not directly impacted by lockdowns.”

Most surprising was the continued strong improvement in the retail industry, where conditions have surpassed pre-corona­virus levels to hit positive territory for the first time since March last year and are at their strongest since November 2015.

Retail is the best-placed sector outside mining, the survey reveale­d, and the only sector to record above-average levels of capacity utilisation.

The business survey was conducted over the final week of June, before the recent outbreak in Victoria. Mr Oster warned that, were the survey to be conducted today, the outcomes would likely be worse because it would reflect the fears arising from a second wave and the lockdown in greater Melbourne.

The latest ANZ-Roy Morgan survey, conducted over the weekend and also released on Tuesday, showed consumer confidence fell for the third consecutive week. The consumer confidence index fell a further 0.5 per cent to 91.6 points, compared with a long-term average level of about 113 points.

Consumer confidence is now 6 per cent lower than it was in mid-June, driven by a 15 per cent fall in sentiment around “current economic conditions”.

ANZ head of Australian economics David Plank said the virus outbreak was “most likely the primary contributor to the turn in sentiment”.

The effect on consumption in Victoria is already apparent.

CBA data released Tuesday showed that while card spending across the country was up 7.2 per cent compared with a year ago, spending growth in Victoria remaine­d down by 3 per cent.

Josh Frydenberg said that the seriousness of events in Victoria shouldn’t be downplayed, but “at the same time, we cannot allow it to derail the progress being made across the country”.

On July 23, the Treasurer will present the government’s transition plan for major measures.