Business upbeat, but interest rates a concern, NAB survey finds

A lift in corporate confidence in January despite challenging operating conditions through the Omicron outbreak suggests businesses are comfortable the disruptions will prove temporary.

A lift in corporate confidence in January despite challenging operating conditions through the Omicron outbreak suggests businesses are comfortable the disruptions will prove temporary. Picture: Sarah Marshall

Confidence that the Omicron disruptions would prove short-lived helped trigger a sharp recovery in business confidence in January, even as growing talk of interest rate rises in 2022 spooks consumers.

After a significant deterioration in the corporate mood in December as the new Covid strain stymied spending over the festive season and sent many workers into isolation, NAB’s latest confidence index bounced back in January from minus 12 points to plus four points – where a reading below zero indicates more pessimists than optimists among surveyed companies.

NAB chief economist Alan Oster said the rapid turnaround in sentiment was “reflecting that the outbreak looks to have peaked quickly and lockdowns have been avoided”.

“That positive outlook is underpinned by forward orders, which held steady through January despite the disruption,” Mr Oster said.

Improved business confidence is another sign the economy has navigated the latest outbreak relatively unscathed.

However, the prospect of climbing borrowing costs has dented the confidence of consumers, with ANZ’s weekly sentiment gauge easing back below the neutral level at the weekend, with outsizes falls in assessments of current and future financial positions.

Reserve Bank governor Philip Lowe last week revealed a materially upgraded economic outlook, including a forecast for unemployment to fall to 3.75 per cent by the end of this year, and conceded that rate rise this year was “plausible”.

While the consensus among private sector analysts has coalesced around an August to Nov­ember timing for the first rate rise of 0.15 percentage points, others, such as economists at Bank of America and Nomura, see a June rise as the most likely outcome.

ANZ senior economist Felicity Emmett said following the election in May, every RBA board meeting should be considered “live” – or with the potential for a rate rise – with stronger than anticipated wages data the most likely trigger.

While businesses were more confident that Omicron’s impact was waning, NAB’s survey also revealed that the outbreak had weighed heavily on the operating environment in January, with the business conditions index dropping five points to three points, just below the long-run average.

Surveyed measures of profitability, trading conditions and employment all fell, across almost all states and industries.

The hardest-hit segments were recreation and personal services, and the survey also showed that the retail, transport, and construction sectors all recorded significant hits to their operating conditions.

“Overall, the January survey shows significant disruption to business activity from the spread of the Omicron variant, albeit impacts on businesses were less severe than in past outbreaks,” Mr Oster said.

“With case numbers appearing to have peaked in late January, some staffing constraints should ease and conditions should improve in the coming months, but uncertainty remains about how quickly wider supply chain issues will be resolved,” he said.