The modest confidence improvement offers slim comfort for RBA watchers given the index remains firmly negative across all industries and profitability is the weakest sub-component relative to its long-run average. The drop in capacity utilisation below 82%, the first such reading since early 2025, is consistent with an economy losing momentum and adds to the case for the RBA to maintain an easing bias. Cost pressures easing only slightly keeps the inflation picture complicated, particularly alongside the global energy price environment. For markets, the data reinforces a picture of an Australian economy muddling through rather than deteriorating sharply, which is unlikely to force the RBA’s hand in either direction in the near term.
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Australia’s NAB business confidence rose to -14 in May from -23 in April while conditions held steady at +3, but cost pressures and global uncertainty kept sentiment firmly negative. (181 chars)
National Australia Bank monthly business survey, summary:
- Business conditions held at +3 in May, unchanged from April and ending four consecutive months of decline
- Business confidence improved to -14 from -23 in April, remaining negative across all industries
- NAB economist Michael Hayes said global uncertainty, a softening domestic backdrop and elevated cost pressures are keeping confidence very weak
- The profitability sub-component is furthest below its long-run average of all measures, pointing to persistent margin squeeze
- Cost measures eased somewhat in May but remain historically elevated
- Capacity utilisation fell below 82% for the first time since early 2025, signalling softer economic growth
Australian business conditions held steady in May while confidence staged a partial recovery from deeply pessimistic April levels, though the overall mood across the corporate sector remains firmly negative as cost pressures continue to erode profitability.
The National Australia Bank’s monthly survey showed its business conditions index unchanged at plus-3 in May, ending a four-month run of declines. A modest lift in sales activity offset continued weakness elsewhere, preventing a further deterioration. Confidence improved to minus-14 from minus-23 in April, but the recovery leaves sentiment well in negative territory.
NAB economist Michael Hayes said the combination of persistent global uncertainty, a softening domestic economy and elevated costs is keeping firms cautious, with no industry recording a positive confidence reading. He flagged that the profitability sub-component is tracking furthest below its long-run average, suggesting businesses are absorbing cost increases rather than passing them through in full.
Cost measures eased modestly during the month but remain high by historical standards. Capacity utilisation slipped below 82% for the first time since early 2025, a reading that NAB characterises as consistent with subdued economic growth rather than contraction.