Australia / Spotlight Reports
Economic Update: COVID-19 and Business Confidence, June 2020

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by Yin Yeoh
Jul 14 2020

Business confidence rose by 21 points in June, according to NAB’s monthly business survey, to reach 1 index point. With the initial easing of social distancing measures, business confidence turned positive after recovering from record lows over the past three months. The business confidence index is an indicator of overall business conditions, represented by the current financial position and economic outlook of businesses. When the index is at zero, the number of optimistic and pessimistic responses are equal. The index is positive when more businesses are optimistic and negative when more are pessimistic.

The business conditions index is also an indicator of overall operating conditions. Unlike business confidence, the business conditions index is represented by trading conditions, profitability and employment indexes. Similar to business confidence, the business conditions index has rebounded in June. The business conditions index rose 17 points to reach -7 index points in June, driven by significant improvements in trading conditions and profitability. However, the employment index remains weaker than the other two components, suggesting that the labour market has a long way to recover.

Business conditions improved across all industries in Australia, with the mining and retail sectors improving the most, followed by transport and utilities. Service sectors have been the slowest to recover, while the manufacturing and construction sectors have also remained weak despite both sectors not being directly impacted by lockdowns. Despite the rebound in business conditions, the survey suggests that it will be some time before the business sector makes a full recovery. While the initial easing of restrictions was sooner than expected, business conditions remain fairly weak. The reintroduction of stage-three restrictions in Metropolitan Melbourne and Mitchell Shire in July is expected to negatively affect business confidence and conditions. The effect of stage-three restrictions can already be seen in the drop in consumer sentiment for July, which was released today. The decline in consumer sentiment reversed all of the gains in June when restrictions were eased that month.