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Business confidence bounces

Lachlan Maddock
— 1 minute read

Business confidence saw a rebound in May, but remains negative at a level last seen at the bottom of the 1990 recession.

Business confidence is now at -20 from -45 according to the NAB Business Survey for May, but all industries continue to expect a deterioration in conditions. Business conditions rose 10 points to -24 points after falling to GFC lows in April. 

“Conditions rose in the month, but they are still negative and this tells us activity was still extremely weak in May,” said NAB group chief economist Alan Oster. ”While some coronavirus containment measures have eased, there are still restrictions in place and the services sectors which are most impacted by these measures continue to show the weakest conditions.”

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The tentative rebound stems in part from eased restrictions, but the employment index and capex remain “very weak”, indicating ongoing restraint in the business sector when it comes to hiring and expansion plans. Capacity utilisation also remains historically low, while forward orders – also near record lows – suggest activity will remain weak in the near term. 

“The improvement in trading conditions and profitability is in line with what we are seeing in other data sources, as well as the moderation in job shedding,” Mr Oster said. “However, it is likely that it will take some time for the employment index to reach positive levels with capacity utilisation still low and activity yet to fully rebound.”

Only around 5 per cent of firms report being unaffected by COVID-19, with over one-third reporting a “major negative impact”. On average, the business sector reports an 11 per cent decline in revenue because of the pandemic. 

“The business survey points to a very large fall in activity for Q2 following the fall recorded in the Q1 national accounts last week,” Mr Oster said. “Other indicators have already confirmed this, and the labour market impact has been large.

“We will continue to closely watch the recovery in confidence, as it will likely be a key factor in how businesses recover from the largest downturn in the economy since the 1930s.”

 

Business confidence bounces
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