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Business confidence rebounds but supply constraints remain

The latest NAB Quarterly Business Survey shows that business confidence rebounded dramatically in the fourth quarter of 2021.

The survey, released on 3 February, saw business confidence up 20 points to +18 index points, as lockdowns were lifted in major states and vaccination rates hit key milestones. The rebound followed a sharp fall that saw the confidence index turn negative during the Delta wave of the virus in Q3. Business conditions, by contrast, had remained in positive territory through Q3 and were steady at +12 index points in Q4.

According to Alan Oster, NAB Group Chief Economist, business confidence lifted in Q4 as high vaccination rates and the end of lockdowns saw economic activity rebound and the outlook improve considerably.

“Conditions were steady overall, reflecting that lockdown impacts were less severe in 2021 than in 2020,” said Mr Oster. 

“That said, many of the worst affected sectors such as retail, and recreation and personal services saw conditions improve, and conditions also improved in NSW and Victoria where the most significant lockdowns had been imposed.”

Mr Oster said the economy was showing considerable strength prior to the spread of the Omicron variant, and that translated into a positive outlook for the coming months.

“We now know that Omicron has dampened that recovery somewhat but, fundamentally, we expect that positive trajectory to continue when the current virus outbreak recedes,” he said. 

Ongoing supply chain issues and border closures saw 85% of firms report availability of labour as a constraint on output, while 47% reported availability of materials as a constraint – both records in the history of the survey. As a result, both cost growth and retail price growth remained elevated.

“A large share of businesses reported facing supply constraints in late 2022 as disruptions to global supply chains as well as a tightening labour market began to bite, and that has translated into higher inflation in official data,” said Mr Oster. 

“The key question will be when, if at all, supply chain pressures ease as well as how quickly wages respond to an increasingly tight labour market.”

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