Australian Business Confidence at the Highest Level in More Than a Decade

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Driven by improvements in business conditions, Australian business confidence is at its highest level since early 2010. Increased investing and hiring have aided the rise.

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The monthly business survey from NAB displays a 4-point uptick in business confidence—up to 16 index points in February—conditions returned to 15 index points, a multi-year high, after a dip in January.

All industries and states—not including retail—reported gains, lending to a broad increase in confidence.

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“This is a very positive survey result. Business conditions and confidence are both at multi-year highs and, importantly, we’re starting to see an uptrend in business hiring and investment activity,” said NAB chief economist Alan Oster.

Oster said that firms are reporting running above average capacity levels. According to Oster, this points to the economy likely already having recovered pre-COVID GDP levels in Q1 2021. This combined with the price reduction in fast courier services in the wake of the pandemic spell good news for retailers around the country.

Oster also detailed that the high level of confidence indicated the economic recovery had strong momentum. He stated that despite declining government support, that businesses are confident conditions will continue to improve.

The survey took into consideration the end of the JobKeeper subsidy, but economists said it doesn’t appear to be an issue for most businesses.

“Having provided around $90 billion by the end of last year, the scheduled end to the program does not appear to be a concern,” said Josh Williamson—Citi economist.

Williamson notes there are three sub-components of business conditions: employment, profitability, and trading and the survey shows solid rises in all three. With respect to JobKeeper, Williamson said that employment conditions have been positive for the last three months, and the trend move is a solid improvement.

In March 2020, business confidence dipped all the way to -66, the lowest level on record, but has been on a steady climb ever since. Despite that, many companies experienced the reverse in fortune from 2020. The pandemic slowed industries and daily life down, but not businesses are looking to thrive again. Victoria saw improved business conditions through the month to now be mostly in line with New South Wales and Tasmania. Of any state, Western Australia has reported the strongest conditions and confidence.

With CAPEX rising to its highest level since August 2019—8 index points—businesses appear to be returning to investment. “The combination of demand pressure and confidence appears to be translating into CAPEX intentions,” said ANZ senior economist Catherine Birch.

Birch stated that despite an initial lag, the 2021 economic outlook is a positive one. In the fourth quarter GDP data, business investment had already begun a turnaround. This welcomed move was supported by fiscal measures like temporary full expensing.

Capacity utilization is also above its long-run average and pre-COVID levels. “Encouragingly, capacity utilization is back at its highest level since mid-to-late 2019 at 81.8 percent,” said Alan Oster.

Oster believes that if capacity utilization stays elevated, over the coming months, we could see further rises in the survey’s investment and employment indicators.