According to a recent survey conducted by National Australia Bank (NAB), business conditions in Australia softened in January, with the service sector experiencing a slowdown. This led to a decrease in the index of business conditions to +6, just below its long-run average of +7. Despite this, the measure of business confidence increased by 1 point to +1, following a 7-point rebound in December.
NAB’s chief economist Alan Oster noted that confidence remains weak due to ongoing pressures across the economy, including slowing growth and high cost growth. The survey revealed that business sales eased 3 points to +11, while both profitability and employment dipped 2 points to +5. Capacity utilization also picked up to 83.6% from 82.8%.
In terms of costs, the survey showed that quarterly growth in purchase costs edged up to 1.8% in January, while growth in retail prices rebounded to +0.9% from +0.5% in December. Oster mentioned that despite these price pressures remaining solid, they are expected to ease in early 2024 as the economy continues to slow.
The Reserve Bank of Australia (RBA) has responded to these economic conditions by raising interest rates to a 12-year peak of 4.35% in an effort to restrain inflation. The RBA also warns that another rate hike might be necessary, despite the slowing economy. As a result of this increase, businesses may face higher borrowing costs and reduced profitability, which could lead them