Australian Business Confidence Turns Negative After Rate Hike
Synopsis
Australian business confidence fell 5 points to minus 1 in February, the first negative reading in nearly a year, according to an index released Tuesday by the National Australia Bank. Last month, the Reserve Bank of Australia lifted interest rates by a quarter point to 3.85 per cent, its first hike in two years, and businesses quickly felt it. Business conditions were unchanged at plus 7, sales increased slightly while profits and employment both eased. NAB also cautioned that the survey was conducted before oil prices and tensions in the Middle East became really bad, which means the next reading could look worse still.
Australian business confidence has turned negative for the first time in one year, last month as the Reserve Bank of Australia increased its interest rates. Business conditions remain stable and sales are increasing slightly, but the overall sentiment among the market has decreased and expected first rate hike will happen in almost 2 years.
Key Highlights
- Business confidence dipped to minus 1 in February, the first negative reading in 11 months
- The RBA lifted rates by 0.25% to 3.85% in February, its first rate hike over two years
- Business conditions were unchanged at plus 7, in line with the long-run average ∙
- Sales were slightly up to plus 12 but profits were unchanged at plus 4 and employment was down a notch to plus 3
- NAB said the survey didn’t fully incorporate the oil price surge, and next month could be uglier
Australian Business Confidence Just Went Negative, Here Is The Reason Why
Australian businesses are feeling more gloomy than hopeful for the first time in almost a year. A survey from the National Australia Bank, released Tuesday morning, showed that the confidence index fell 5 points to -1 in February. That might seem like a small step, but moving into the negative zone is a sign that more businesses are concerned than feeling good. It was last this low in April 2025.
The main reason is straightforward. The Reserve Bank of Australia increased interest rates last month, the first such move in two years, and businesses felt it right away.
The Reserve Bank of Australia Lifted Rates, and the Hit Was Immediate for Businesses
In February the Reserve Bank raised its cash rate by a quarter of a per cent to 3.85%. It was the first hike since late 2023. The RBA did so because inflation in Australia has remained steadfastly hot, above the target band. Governor Michele Bullock said bluntly that the bank could not allow inflation to get away from it again.
For businesses, rising interest rates mean increased borrowing costs. Businesses that depend on loans to purchase equipment, expand their operations or simply keep money flowing day to day now suddenly have bigger repayments. That makes owners more cautious. Some paused expansion plans. Others slow down hiring. All of that was reflected in February’s numbers, according to the NAB survey.
The Numbers That Stuck, and the Ones That Slipped
There was at least one decent takeaway from the survey. Business conditions, which aggregate trading, profits and employment together, remained unchanged at plus 7. That is in line with the long-run average and indicates that actual day-to-day trading has not dropped off a cliff. Sales ticked up a point to plus 12, a strong number.
But some parts softened. Profits remained at a paltry plus-4, indicating firms are floundering but still in some cases making money. Employment fell slightly to plus 3, suggesting that companies are being somewhat more cautious about adding new staff. Labour and input costs also continued to ease, which is one piece of good news, businesses are not being squeezed as hard on costs compared with six months ago.
The Worst of It May Not Be In These Numbers Yet
When it released the survey, NAB did flag something important. Much of that data was collected before the Middle East war had fully escalated and oil went over $100 a barrel. That means this week’s jump in fuel prices, the falloff in global markets and the general uncertainty of last week didn’t show up as fully yet in these results.
The next monthly reading, in April, will capture all of that. Fuel prices reverberate through nearly every corner of the economy. Transport becomes more expensive, raising the cost of moving goods. Companies that consume lots of energy face larger bills. And if consumer spending takes a further hit because households feel pinched, trading conditions could worsen quickly. NAB bluntly stated that confidence might come under more pressure in the months ahead.
FAQs
Q: What does a minus-1 reading indicate?
A: More pessimistic than optimistic, it was the first negative reading since April 2025.
Q: Did business conditions fall too?
A: No, conditions were resuscitated to plus 7, the long-run average. What fell was confidence, not actual trading.
Q: Why might next month get worse?
A: The survey was conducted before oil topped $100 and tensions in the Middle East spiked, those pressures will be reflected in the March reading.
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