Business confidence has continued to rise. However, there remains limited momentum in activity, and ongoing inflation pressures.
Key results (December 2023)
- Business confidence: 33.2 (Prev: 30.8)
- Expectations for own trading activity: 29.3 (Prev: 26.3)
- Activity – same month one year ago -4.2 (Prev: -12.5)
- Inflation expectations: 4.61% (Prev: 4.79%)
- Pricing intentions: 50.2 (Prev: 46.8)
The ANZBO measure of business confidence rose to 33.2 in December. That’s the eighth rise in a row, and takes confidence back to levels we last saw in 2015. We also saw a further rise in firms’ expectations for their own trading activity.
However, while business confidence is on the rise, digging into the details we’re left with a still soft picture of economic activity at the close of 2023. Most businesses (a net 4%) actually reported that trading activity has declined over the past year. While that’s not as low as it was last month, it still points to weakness in economic activity. There’s been particular weakness in the retail and construction sectors, consistent with the feedback we’ve received from businesses around the country.
There was also some notable news on the inflation front. Expectations for inflation over the coming year have continued to ease, dropping from 4.8% previously to 4.6% now. That’s still high, but moving in the right direction.
However, there were more worrying signs when we look at businesses’ expectations for their own finances. The number of businesses who expect their operating costs to rise picked up to 76.2% (from 73.9% previously). There’s also been an increase in the number of businesses who are planning on increasing their prices to 50.2%. That’s the third increase in a row.
Those continued cost and price pressures chime with comments we’ve heard from our own business contacts who have reported that operating cost pressures remain firm. In many cases, they’ve also told us it’s become harder to pass cost increases into output prices. We expect that continued pressure on operating costs will mean that domestic inflation eases only gradually over the year ahead.
Overall, while confidence is up, we’re still left with a picture of limited momentum in economic activity and lingering inflation pressures.
