Business confidence sinks under Omicron wave, finds NAB business survey

The outbreak of Omicron dealt a major blow to corporate confidence in December, but trading conditions have stayed relatively steady.

Omicron dealt a major blow to corporate confidence in December, but trading conditions have stayed relatively steady, according to NAB’s latest business survey. Picture: David Crosling

The Omicron outbreak has triggered a collapse in business confidence, with a survey revealing sentiment in early January reached its lowest level since the national lockdown of 2020.

Despite the absence of mandatory health measures, the huge lift in new Covid cases at the start of 2022 spooked firms, particularly employers who have struggled to deal with chronic staffing shortages.

NAB’s business sentiment index dropped 24 points – the third-largest fall on record – to -12 points as firms fretted that the latest Covid-19 surge would put the brakes on the robust economic recovery out of last year’s lockdowns.

A reading below zero reflects more pessimists than optimists.

Companies in NSW reported the largest deterioration in sentiment, down 31 points, followed by a 25-point drop in Victoria.

NAB chief economist Alan Oster said “overall, the December survey results are consistent with an economy that’s starting to slow, with some similarities to the data when NSW and Victoria were first entering lockdown”.

While confidence took a “large hit”, the bank’s business conditions index fell by only three points to eight points – above the long-run average and largely as a result of a drop in the employment measure, which dropped by nine points to two points.

In contrast, profitability was up one point to 10 points and trading conditions was steady at 14 points, the survey revealed.

“Conditions improved in a number of states including Victoria and Tasmania, but there was a large fall in Queensland that may relate to some of the challenges with state borders,” Mr Oster said.

“The Omicron outbreak had a significant impact on leading indicators. That suggests that while the economy was still going OK in December, it was clearly slowing and the warning lights were coming on.”

While business conditions could worsen in early 2022, Mr Oster said “we don’t expect the Omicron variant to derail the recovery longer-term”.

Miners were the only industry to show an improvement in confidence, while the gauge for personal services and recreation firms plunged by 46 points.

Goldman Sachs chief economist Andrew Boak noted that the confidence survey was conducted between January 4 and 14, “capturing the rapid surge in Omicron cases across the country and related labour supply disruptions”.

ANZ’s weekly consumer confidence survey showed a rebound in household sentiment last weekend, to back above the “neutral” level.