News

Australian Business Activity Remains Resilient Despite Economic Challenges

James L. Flint

• September 12, 2023

Australian business activity continues to show resilience amidst rising mortgage interest rates and concerns surrounding China's economy. Despite these challenges, the National Australia Bank's business conditions index rose to +13 index points in August, indicating that business conditions remain strong. Confidence readings also saw a slight increase.

This data supports the growing belief that Australia's commodity-rich economy will avoid a recession in the coming year. However, due to this strength, interest rate cuts may be delayed until later than expected, possibly even into 2024. There is even a possibility of the Reserve Bank of Australia raising the official cash rate further this year.

The recent strength in business activity follows a three-month pause in interest rate hikes by the RBA, who have cautioned about the potential for further increases.

According to NAB, trading conditions, profitability, and employment all experienced growth. This improvement was seen across various industries, indicating a broad-based uptick in conditions. Capacity utilization across the economy also increased, surpassing 85%.

Although confidence and forward orders measures showed a slight improvement, they still remain below average. This is primarily due to negative factors affecting the retail sector.

Worryingly, the survey revealed that cost and price growth measures remained high. However, labor cost growth did see a decrease compared to a spike observed in July.

Overall, the figures suggest that the Australian economy remained strong in the third quarter. Alan Oster, chief economist at NAB, commented that confidence slightly increased and leading indicators strengthened. Business confidence has returned to positive territory over the past two months, although still slightly below average.

Oster further emphasized that businesses continue to report high levels of capacity utilization, indicating a tight balance between supply and demand in the economy despite slowing growth.