Australia Business Sentiment Weakens, Consumer Confidence Improves

Australia’s business conditions and confidence weakened in May, indicating signs of slowdown in economic activity, survey results from the National Australia Bank showed Tuesday.

Elsewhere, a survey from Westpac showed that consumer sentiment improved in June but remained near recession lows.

The business conditions index fell to 8 points from 15 points in April. The fall was driven by the declines across all three sub-components.

The trading indicator decreased eight points to 14 and the employment index weakened seven points to 4. Likewise, the profitability index declined five points to 7.

The gradual easing seen in business conditions seen through early 2023 appeared to be strengthening, NAB Chief Economist Alan Oster said. Nonetheless, conditions remained above average reflecting the strength seen through the last year.

The business confidence index posted -4 in May, weaker than April’s reading of zero. The decline in confidence was broad-based across industries, with the exception of mining, manufacturing and transport and utilities.

Forward orders plunged six points and capacity utilization weakened but remained at 84.7 percent, survey showed. Reported capex slid two points to 6 in May.

Both input and output price growth increased and remained high.

The trend in price measures over coming months will be important as the central bank tries to assess whether it has done enough and if underlying inflation pressures are easing in a timely way, said Oster.

“With the easing in business conditions accelerating and forward orders falling sharply, there is a growing risk that the RBA’s attempts to maintain an even keel ‘run aground’,” said Oster.

The Westpac survey showed that consumer confidence improved only marginally in June. Inflation remained the dominant drag on sentiment and well ahead of rates.

The Westpac-Melbourne Institute Consumer Sentiment advanced to 79.2 in June from 79.0 in May.

The survey was conducted between June 5 and 9. The period covered the announcement of the decision by the Reserve Bank. The bank had raised the cash rate target by 25 basis points to 4.10 percent.

The survey revealed that interest rates are not the most troubling issue for all households.

Westpac Chief Economist Bill Evans said the Reserve Bank is likely to raise the cash rate by a quarter point to 4.35 percent in July.

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