Australian business conditions softened further in January, with a slowdown in the service sector leading the decline, according to a survey by National Australia Bank (NAB). The survey revealed that the index of business conditions slipped 2 points to +6 in January, just below its long-run average. 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, consistent with ongoing pressures across the economy, and attributed the slowdown to slowing growth and high cost growth.
The survey also showed a decrease in business sales, with a 3-point dip to +11, while both profitability and employment dipped 2 points to +5. Capacity utilization saw a slight improvement, increasing to 83.6 percent from 82.8 percent. Meanwhile, quarterly growth in purchase costs rose to 1.8 percent in January, and growth in retail prices rebounded to +0.9 percent from +0.5 percent in December. Oster highlighted that price pressures remain solid despite the easing in activity measures, but expects a gradual easing in price pressures in early 2024.
The Reserve Bank of Australia (RBA) has raised interest rates to a 12-year peak of 4.35 percent in an attempt to control inflation. The RBA continues to caution that another rate hike might be necessary, regardless of the slowing economy.
In summary, Australian business conditions softened in January, primarily driven by a slowdown in the service sector. Business confidence improved slightly, but remained weak. While sales, profitability, and employment dipped, there was a slight uptick in capacity utilization. Price pressures remained solid, although Oster expects a gradual easing in the coming months. The RBA continues to monitor the situation closely and has raised interest rates to curb inflation.
