Business outlook sours for the first time this year after Covid economic rebound: NAB survey

The mood among businesses has turned negative for the first time this year, as companies worry that the best of the post-Covid-19 economic rebound is now behind them.

Households with a mortgage are hopeful the worst of the rate hikes are behind them. Picture: David Swift/NCA NewsWire

The mood among Australian businesses has turned negative for the first time this year, as companies worry that the best of the post-Covid-19 economic rebound is now behind them.

NAB’s latest monthly survey showed businesses were still enjoying strong operating conditions in November, but that worries about an anticipated steep slowdown in 2023 drove the corporate sentiment index down four points to minus four points – the first subzero reading since December 2021.

NAB chief economist Alan Oster said “overall, the survey suggests the economy powered through November with consumers still spending in the run-up to Christmas”.

“However, firms have become increasingly pessimistic about the future as they look ahead to a slowing global economy and a period of weaker consumption as inflation and higher rates weigh on households,” he said.

Cost pressures had eased since the middle of the year, but remained high, the survey showed. Forward orders also softened in November.

The mood among businesses has turned negative for the first time this year, as companies worry that the best of the post-Covid-19 economic rebound is now behind them. Picture Rebecca Michael

As businesses prepared for a more difficult 2023, the separate Westpac-Melbourne Institute survey, also released this morning, showed intense pessimism across the country’s mortgage belt eased in December as households began to hope the worst of this year’s aggressive rate hikes were behind them.

Despite the slight improvement in Westpac’s consumer confidence index this month, the mood remained grim, with the sentiment gauge recovering from recessionary levels but remaining deeply negative and comparable with the lows during the Covid peaks and the global financial crisis in 2008.

Inflation and the state of the economy remained Australians' biggest worries, the survey showed, as the overall consumer sentiment gauge increased by 3 per cent, from 78pts in November to 80pts in December – well below the 100pt threshold where the number of pessimists match optimists.

Westpac chief economist Bill Evans said “at least there has been no further deterioration since the September survey and, in the case of interest rates, there are even some signs that the news is becoming viewed as slightly less negative”.

Among respondents with mortgages, the confidence index jumped by 11 per cent after slumping to an all-time low in November.

There was also a “surprising” jump in the outlook for house prices, with the associated index jumping by 27 per cent from 91pts to 117pts – indicating more respondents expected property values to rise than fall over the coming year.

Mr Evans said the survey result was “consistent with the notion that the bulk of the interest rate tightening cycle is now behind us”.

“This idea may also be behind a notable recovery in confidence more generally among those respondents who hold a mortgage,” he said.

Half of those surveyed following this month’s Reserve Bank decision to increase rates to 3.1 per cent anticipated rates to rise by a further 1 percentage point over the coming 12 months – down from 60 per cent in November, and a peak of 73 per cent in July.

Economists and financial markets predict rates will peak at around 3.6 per cent by the middle of next year.

This year’s collapse in consumer confidence has not been matched with spending, which has remained strong and drove a solid quarter of economic growth in the three months to September.

Economists predict consumption will slump in 2023, however, as mortgage holders begin to see this year’s rate hikes reflected in higher interest payments, and the hit to real incomes from high inflation begins to bite.