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Business confidence deteriorates amid rising COVID infections

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
12 August 2020 1 minute readShare
Business confidence deteriorates

Business confidence has seen a significant deterioration across all industries and in a majority of states, amid a rise in coronavirus cases in both NSW and Victoria.

According to NAB’s latest business survey, the most significant deterioration in confidence occurred in NSW and Victoria where concerns around the spread of the virus were escalating from 22–31 July when the survey was conducted.

NAB cautioned that the survey reflects a drop in confidence prior to the escalation to stage 4 restrictions in metropolitan Melbourne and stage 3 in rural Victoria.

According to Alan Oster, NAB group chief economist, while conditions have continued to recover, broadly around their pre-COVID level, business confidence has taken a significant plunge, dropping 14 points in July to -14 index points.

With the exception of retail and construction, which saw more modest falls, the remaining industries declined by 17–19 points. But retail and construction remain the weakest despite the relatively small declines in the month.

“By industry, the decline in confidence was broad-based and it is again quite negative in each industry. Construction and retail are weakest, but only by a small margin,” Mr Oster said.  

“Despite being the most heavily impacted by virus containment measures so far, recreational and personal services is now the least pessimistic across industries.”

Confidence fell on the east coast, driven by sharp declines in NSW and Victoria and a more modest decline in Queensland.

Confidence is now negative in all states except Western Australia and Tasmania, with NSW and Victoria significantly weaker than the rest.

Moreover, NAB revealed that while forward orders saw a modest improvement as did capacity utilisation, both remain very weak compared with history. Thus, while conditions improved, businesses continue to operate at a lower level than normal and with a smaller expected pipeline of work.

Mr Oster said: “While the improvement in conditions is very welcome, capacity utilisation and forward orders point to ongoing weakness overall.

“Therefore, with confidence still fragile, there is some risk that conditions lose some of their recent gains in coming months.”

He predicted that Victoria’s escalation in COVID cases will likely see harder impacts on activity going forward, with mandated reductions in activity for a broader range of industries.

“While the rebound in conditions is encouraging, the fall in confidence even prior to the announcement of stage 4 restrictions in Melbourne demonstrates that businesses will remain very cautious given the great uncertainty around the virus at the moment,” Mr Oster said.

“It also highlights that the business sector will require ongoing support through the recovery phase until the economy can get back on its feet.”

Business confidence deteriorates amid rising COVID infections
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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