Business conditions in Australia softened in the first quarter of 2025, according to the latest NAB Quarterly Business Survey, with all three sub-components — profitability, trading, and employment — experiencing modest declines ahead of the looming federal election.
While business confidence saw a slight uptick, it remains negative and well below the long-run average, pointing to continued caution among firms as the survey was conducted before the April 2 tariff announcement.
NAB economists Michelle Shi and Gareth Spence reported that overall business conditions fell by one point to +2 index points, marking a broad-based easing across sectors. The profitability index dropped two points to -3, while trading and employment conditions each fell by 1 point.
Industry-specific results showed mining conditions dropped sharply, while transport and utilities, financial, property & business services, and wholesale sectors also weakened. Retail rebounded slightly but remained negative, continuing a downturn trend since Q4 2023.
Business confidence improved one point to -4 index points nationally, with the retail sector showing improvement. However, confidence in the mining sector deteriorated significantly, remaining in negative territory.
Forward-looking indicators revealed that businesses are still hesitant to invest or expand, with expectations for the months ahead showing caution. Capex plans over the next 12 months dropped, indicating businesses remained cautious in the first quarter of the year.
Business conditions declined across most states, with WA and Queensland seeing steepest declines. Labour constraints eased slightly, while demand pressure grew, signaling changing priorities for businesses. Sales constraints increased, showing intensifying demand-side pressures.
Quarterly cost metrics suggested slightly easing input pressure, with labour cost growth slowing and purchase cost growth rising. Retail price growth accelerated, while key business concerns shifted from wages to demand and margins.
NAB reported that wage costs continue to top the list of business concerns, but their reported impact has been easing over time. In contrast, margin and demand pressures have grown, leading to NAB updating its OCR forecast with the expectation of further rate cuts this year.
Overall, the NAB Quarterly Business Survey reflects a cautious outlook among Australian businesses, with softer conditions and lingering uncertainty affecting various sectors and states, highlighting the need for careful strategic planning and risk management in the current economic climate.
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