Australian business conditions stable in May, confidence remains low

Despite the stabilization in conditions, business confidence saw only a modest improvement, rising to -14 from a deeply pessimistic -23 in April. NAB economist Michael Hayes noted that persistent global uncertainty, a softening domestic economic backdrop, and elevated cost pressures contributed to the weak confidence across all industries.

Hayes highlighted that the profitability component of the survey was particularly weak, suggesting ongoing margin pressures for businesses. While measures of costs eased somewhat, they remained historically high. Capacity utilisation also declined, falling below 82% for the first time since early 2025, indicating softer economic growth.

The Reserve Bank of Australia has implemented three interest rate hikes, bringing the policy rate to 4.35%, in its efforts to control stubborn inflation. Policymakers are concerned that businesses might pass on rising energy costs to consumers, potentially fueling future inflation expectations.