Economy at ‘multi-speed’ as business confidence recovers, economists say

In June, the construction and mining sectors benefited from the current economic conditions, while manufacturing, retail, and wholesale continued to suffer from high interest rates and energy costs, CreditorWatch chief economist Ivan Colhoun has told Accounting Times.

Referring to NAB’s Monthly Business Survey for June 2026, Colhoun said that the economy is “emerging as various sectors battle or benefit from the combined effects of higher interest rates, higher energy prices and the AI investment boom”.

“The sector trends reveal the emergence of a multi-speed economy that depends on the headwinds or tailwinds that arise for a particular business from the combination of higher interest rates, on-again, off-again higher oil prices, the AI investment boom and recent changes to taxation,” he added.

NAB’s findings showed that business confidence currently sits at -5 index points, up 9 points for the third consecutive month, while business conditions have remained at 3 index points, below the average of 7 index points.

The report revealed that the 9-point increase in confidence was driven by gains in retail and manufacturing, with improvements in most other industries except for transport, utilities, and mining.

These findings also revealed that broad-based confidence improved in all states, with NSW leading the rise by 13 points; however, confidence across the country remained negative in trend terms.

“The confidence and cost growth components of the survey continued to recover in June as news about the conflict in the Middle East and the price of oil turned more positive,” the report said.

Colhoun said the survey shows important business conditions readings remain softer than before, when interest rates and oil prices rose, albeit not dramatically.

NAB chief economist Dr Sally Auld said: "The picture that emerges is one of an economy that is slowing, but not as sharply as many had feared a few months ago.”

Customers have told the bank that while price pressures remain a challenge, they are feeling more confident about the outlook than they were a few months ago, NAB Group executive business and private banking Andrew Auerbach added.

With business conditions being found to have stayed at three index points after a plummet from seven points, NAB found that Tasmania and Western Australia led the rise in trend terms for business conditions.

“The softening in conditions has been led by declines in trading conditions and profitability, though employment has also softened over the past three months,” the report said.

In the report, conditions were found to have improved notably in transport, utilities, and construction, with smaller gains in recreation and personal, mining, and retail industries.

“In trend terms, mining, finance, business & property and construction are strongest, while manufacturing continues to report the weakest conditions followed by retail,” the report said.

Capacity utilisation has also eased this year, currently at 1.5 percentage points, having declined over the first half of 2026 and down from its November 2025 peak.

“Overall, the business survey shows that the magnitude of the costs shock as a result of the Middle East conflict has not been as severe as earlier expected,” the report said.

While growth in the Australian economy slowed through the first half of this year, easing capacity pressures, the report said the central bank should now have enough time to assess economic developments and leave the policy rate stable through the second half of this year.

Despite this, Colhoun said that high cost pressures could suggest that the RBA needs to implement further tightening soon.

“Somewhat easier capacity utilisation and business conditions, along with emerging weakness in house prices, support the RBA remaining on hold for some time before beginning to ease interest rates sometime next year (as the three other major Australian banks do),” he said.

“I remain to be convinced by the RBA’s capacity-constrained narrative of the Australian economy, beyond some tightness in the labour and housing markets.”