Australian business confidence remained very weak in CreditorWatch's latest economic update, although activity held up slightly better than expected.
Business conditions eased, while forward orders and profitability remained soft, pointing to weaker trading conditions ahead. Cost pressures were also intensifying and feeding into prices as higher fuel and energy costs moved through the economy.
Input costs rose for a second month, with April showing a 4.5% increase at a quarterly rate, or roughly 1.5% over the month. Retail prices also climbed sharply, rising 3.2% at a quarterly rate, equivalent to about 1% in the month.
The pattern suggested businesses were quickly passing higher costs on to customers. Fuel and broader energy costs were central factors because of their impact on transport and production.
Weakness was most visible in sectors seen as more exposed to interest rates and energy prices. Finance, Property and Business Services, Wholesale Trade, and Recreation and Personal Services were the main drags on business conditions.
Higher borrowing costs were likely weighing on Finance, Property and Business Services, while rising oil and diesel prices were hitting Recreation and Personal Services and Wholesale Trade. Retail was relatively unchanged despite pressure on household budgets and operating costs.
Some parts of the economy were more resilient. Mining remained the strongest industry in the survey, supported by firmer energy and precious metals prices, along with spending linked to artificial intelligence and technology that was helping demand for metals including copper and lithium.
Geographically, Western Australia stood out for stronger conditions, in line with gains in mining. Victoria recovered from a particularly weak previous reading, while softer conditions were beginning to emerge in Queensland and New South Wales.
Employment, one component of the survey, fell from six in the previous month to one in the latest update. Profitability was unchanged at zero, though that still marked a notable decline from levels seen late last year.
Forward orders weakened further into negative territory, falling from minus one to minus five. Because forward orders and profitability are often treated as leading indicators, they pointed to softer conditions in the months ahead.
Rate outlook
The findings come as attention turns to the Reserve Bank of Australia and whether it will tighten policy again in response to inflation risks. CreditorWatch argued that, despite worsening price measures, the central bank was likely to hold rates steady for now and assess conditions over the next few months.
The survey was conducted before the latest increase in interest rates, meaning some of the impact of tighter monetary policy may not yet have appeared in the data. That timing suggests further deterioration may still lie ahead.
Chief economist Ivan Colhoun said the latest figures largely reflected pressures already becoming visible across the economy.
"Most messages this month are unsurprising with confidence very weak and input costs and retail prices surging in the month, the latter suggesting rapid pass through. Activity measures have arguably held up better than expected so far, but forward orders and profitability, both components with leading properties, are weak," Colhoun said.
He also highlighted the sectors behind the decline in conditions and one area of relative strength.
"Three sectors led the decline in conditions this month - finance, property and business services; wholesale trade and recreation and personal services - likely reflecting a combination of pressures from higher interest rates and energy prices. The survey was taken before the latest increase in interest rates, so there is likely further negative news to come. The good news is strength in Mining and WA, which likely reflects continual beneficial effects of AI spending and recent higher energy prices," he said.
On monetary policy, Colhoun said he did not expect an immediate move despite the rise in retail prices.
"The RBA Governor suggested policy had now tightened sufficiently to deal with pre-Iran conflict inflationary pressures. The Board will now have to judge what combination of oil and interest rates will be sufficient to return inflation to target over the medium term (probably still a little higher). Despite higher retail prices in April, I expect the Board to monitor the situation for a few months and not lift interest rates again in June," he said.