Falling COVID-19 cases in August may have helped lift corporate spirits, but firms still worried: NAB

Some of the gloom felt by Victorian businesses lifted in August as the state’s COVID-19 wave was brought under control, a survey shows.

There was evidence some of the deep gloom felt by Victorian businesses lifted in August as the state’s second wave of COVID-19 was brought under control. (Photo by Darrian Traynor/Getty Images)

Business confidence staged a cautious recovery in August as Victoria’s second wave of COVID-19 cases eased, although corporate sentiment remained “very weak and likely fragile”.

NAB’s latest monthly business survey, which was conducted prior to the weekend’s announcement of a two-week extension to the Melbourne lockdown, shows the national corporate confidence index lifted by 6 points in August to -8, after slumping by 14 points in July.

Confidence rose across all states aside from Western Australia. The biggest improvements are in Victoria and NSW, but that was also where pessimism was at its greatest, the survey shows.

Firms around the country say operating conditions deteriorated last month, dropping 6 points to -6.

Alarmingly, Queensland, Tasmania and South Australia show steeper declines than Victoria.

CBA senior economist Belinda Allen said the survey revealed “the general uncertainty that remains in the Australian economy”.

The data suggested a “growing risk” that “the situation in Victoria is spilling over to other states and impacting the level of aggregate demand more broadly”, she said.

The worsening in the operating conditions index was driven by a sharp 11 point fall in the employment measure to “deeply negative”, the survey shows.

“At face value this points to ongoing labour shedding by businesses,” NAB chief economist Alan Oster said. He said the improvement in sentiment among Victorian firms was “encouraging”, and that it “likely reflected improvement in case numbers”.  “That said, Victoria continues to show the weakest confidence and second-worst conditions across the states,” he said.

“Given the sheer magnitude of the fall in activity in (the June quarter) and the subsequent lockdowns in Victoria, it’s likely we will see a protracted recovery and a rise in the unemployment rate before it gets better.

Economists are worried that the extended lockdown in Melbourne and painstakingly cautious plan for reopening will tip what had been temporary business closures and worker stand-downs into bankruptcies and permanent job losses.

Ahead of the October 6 federal budget, Mr Oster said that despite the unprecedented level of fiscal stimulus, “we think there will need to be more”.

“This would help businesses and the economy recover more quickly and the focus can again return to growth,” he said.

Business investment slumped in the June quarter, national accounts revealed last week, and the ABS’s survey of capital expenditure intentions for 2020-21 have dropped by a fifth since the start of the year.

NAB’s survey for July reveals a dramatic reversal in sentiment, despite improving operating conditions across most of the country, as Victoria was gripped by the second wave of the virus, ending two months of sharply climbing optimism as the nation reopened following the shutdowns of April and May.

The latest jobs data comes as consumer confidence showed a surprise 1 per cent lift last week, according to ANZ-Roy Morgan’s weekly survey, although the index remained at 91 points, below the 100-point neutral level where optimists are evenly balanced with pessimists.

The survey was carried out ahead of the weekend’s announcement of Victoria’s exit plan from lockdown, but “even taking this into account, the up-tick in confidence comes as a positive surprise”, ANZ head of Australian economics David Plank said.