Business confidence index

IBISWorld forecasts business confidence to average 98.1 index points in 2024-25, rising by 0.6 index points from the previous year. The more confident outlook is driven by easing inflationary and cost of living pressures. Elevated capacity utilisation has also provided support for business confidence. Despite inflation falling inside the target band in September 2024, the Reserve Bank of Australia (RBA) expects inflation to bounce back after the government's energy subsidies end. Persistent inflation, high interest rates and the ongoing global and domestic economic uncertainty are set to continue weighing on business confidence over the year. Tight labour market conditions are constraining business output, while elevated input costs are squeezing profit margins for some businesses, curbing increases in business confidence.

Australia's relative success in containing COVID-19 helped limit the pandemic's effects on business confidence. Over the September 2022 quarter, business confidence strengthened to be above average as capacity utilisation reached a record high. Nonetheless, material shortages and rising fuel prices raised purchase costs for most Australian businesses while increasing job vacancies constrained output. Business confidence has since turned negative as concerns about the economic outlook have deepened, with labour shortages and inflationary pressures negatively affecting areas of the economy.

The business confidence index has fluctuated over the past five years. The 2019-20 bushfire season and the pandemic led to a significant drop in business confidence in 2019-20. Business confidence recovered over 2020-21, fuelled by several support programs, including the Federal Government's JobKeeper wage subsidy. Stimulus measures by state and federal governments have supported economic activity during the pandemic, translating to higher business confidence. As border and state-wide lockdowns began to ease, pent-up demand and recovery in the tourism sector have driven the index above 100 in the two years through 2021-22. The robust demand and supply chain disruptions caused by significant events like the pandemic and the Russia-Ukraine conflict have led to an unbalanced demand-supply condition, driving prices upwards and forcing the RBA to intervene. Contractionary monetary policy, like a cash rate hike, is typically met with a fall in business confidence as consumers and businesses face more expensive credit and higher savings rates, encouraging them to reduce their overall spending. Inflationary pressures have prompted the RBA to hike the cash rate from May 2022 to the latest hike in November 2023. Cash rate hikes and inflationary pressures have weighed on business confidence in recent years. The elevated interest rates environment has also contributed to Australia's slow economic growth and consumer demand in 2023-24, exerting downward pressure on business confidence. Despite this, IBISWorld forecasts business confidence to rise at an average annual rate of 1.2 index points over the five years through 2024-25 due to the low level of business confidence in 2019-20 and growing consumer optimism about an improved economy.