Australian business confidence edged up to -24 in April from -29 in March but remained deeply negative, as surging energy costs squeezed margins and conditions fell to their lowest since 2020, NAB data showed.
Summary:
- NAB’s business confidence index improved marginally to -24 in April from -29 in March, remaining deeply negative after March’s second-largest monthly drop in the survey’s history
- Business conditions fell 3 points to +3, the second-lowest reading since 2020 and the fourth consecutive monthly decline
- Forward orders dropped a further 4 points in April, down 11 points since February and well below long-run averages; capital expenditure fell 8 points in the largest such drop of the post-COVID period
- Purchase costs rose at a quarterly pace of 4.5%, significantly outpacing selling price growth of 1.8%, while retail price growth accelerated sharply to 3.2% from 0.6%
- The Reserve Bank of Australia has raised interest rates three consecutive times to reach 4.35%, with policymakers concerned that businesses passing on energy costs could entrench inflation expectations
Australian business confidence remained deeply negative in April, edging only marginally higher after its historic collapse the previous month, as surging energy costs tied to the Middle East war continued to erode profit margins and dampen investment and hiring intentions, according to the National Australia Bank’s monthly survey.
NAB’s business confidence index recovered slightly to -24 in April from -29 in March, a reading that had represented the second-largest monthly fall in the survey’s history. Despite the modest improvement, confidence remains at a level that points to widespread pessimism across the corporate sector. The bank’s separate measure of business conditions deteriorated further, falling 3 points to +3, its second-lowest reading since 2020 and the fourth consecutive monthly decline.
The detail within the survey painted a picture of broadening economic pressure. Forward orders dropped a further 4 points in April, leaving them down 11 points since February and well below their long-run average. Capital expenditure slid 8 points, the steepest such fall in the post-COVID period, suggesting businesses are pulling back on investment plans in response to the uncertain outlook. Cash flow and employment measures also weakened noticeably, adding to evidence that the energy shock is feeding through from costs into activity.
The cost picture was particularly stark. Purchase costs rose at a quarterly pace of 4.5%, far outstripping selling price growth of 1.8%, pointing to a significant margin compression that businesses are struggling to offset by raising prices. Retail price growth, however, accelerated sharply to 3.2% from just 0.6% the previous month, a development likely to draw close attention from the Reserve Bank of Australia.
The RBA has already lifted interest rates three consecutive times to bring its cash rate to 4.35%, seeking to contain inflation that has proved stubborn in the face of elevated global energy costs. Policymakers have expressed concern that businesses passing rising energy expenses on to consumers could embed higher inflation expectations, complicating the path back to the bank’s target. The latest NAB data suggests that process is already underway, even as underlying business activity softens, leaving the RBA navigating an increasingly difficult trade-off between controlling prices and supporting a weakening economy.
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The combination of deeply negative confidence and deteriorating conditions puts additional pressure on the Reserve Bank of Australia, which is already three rate hikes into a tightening cycle at 4.35% and now faces a stagflationary squeeze: energy-driven cost inflation running well ahead of selling prices, alongside weakening forward orders and capital expenditure. The gap between purchase costs rising at a 4.5% quarterly pace and selling prices at only 1.8% points to a margin compression that will restrain investment and hiring, potentially easing demand-side inflation pressures even as supply-side costs remain elevated
