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According to the latest National Australia Bank’s (NAB) Monthly Business Survey, business confidence plunged 29 points to -29 index points, while business conditions eased only marginally to +6 index points, just below their long-run average.
NAB head of Australian economics, Gareth Spence, said the divergence between confidence and conditions highlights how quickly sentiment can respond to global shocks, even as activity data remains more stable in the near term.
“The outbreak of the conflict in the Middle East saw business confidence fall 29 points to minus 29 index points, the second largest monthly fall in the survey’s history, with falls of this magnitude previously only seen in the global financial crisis and the onset of COVID,” Spence said.
“Business conditions fell only one point to six index points in March, reflecting that while the global news backdrop has impacted sentiment, it is still early days in terms of the flow through to activity.
“Resilience in business conditions also highlights that the economy had carried a healthy level of momentum heading into the unfolding shock.”
Business confidence is now negative across all states, while conditions remain positive in most regions. Western Australia and South Australia recorded improvements in conditions, while Victoria’s business sentiment saw the largest decline.
There is evidence, however, that some sectors that are particularly exposed to oil price volatility are facing mounting pressure. A recent study from credit reporting bureau CreditorWatch points to rising insolvency risks across multiple SME industries as a result of the fuel crisis.
The federal government has since announced a raft of financial assistance to help businesses, including a temporary halving of the fuel excise on petrol and diesel and a $1 billion package of new interest-free loans.
Broker Daily has also spoken to brokers about how they are adapting to keep their clients ahead of rising costs, subdued demand, and new regulatory pressure.
Confidence already diverging prior to conflict
Separate research from non-bank lender ScotPac suggests business sentiment was already becoming increasingly polarised prior to the escalation of conflict in the Middle East.
The ScotPac SME Growth Index Report, which surveyed 728 SME with annual revenues between $1 million and $20 million, found that 59 per cent of SMEs projected short-term revenue growth, with expectations ranging from 3 per cent to as high as 20 per cent.
Five per cent anticipated no change in revenue, down from 29 per cent in 2020. Thirty-six per cent of businesses expected revenue to decline over the following six months, up 9 per cent year on year.
These findings were captured prior to the outbreak of Middle East conflict, indicating that business conditions were already diverging before the latest deterioration in sentiment.
ScotPac CEO Jon Sutton said global developments are now adding further complexity to an already uneven operating environment.
“We’re seeing a clear split between businesses that are more exposed to rising costs and supply chain disruption, and those that remain well-positioned to take advantage of growth opportunities,” Sutton said.
“There are clearly significant dislocations building in the global economy that will flow through to Australian businesses.
“The current geopolitical instability is already impacting key supply chains – particularly fuel, freight and critical inputs – and those effects are likely to intensify in the near term.
“For SMEs, that means having a working capital strategy that can absorb shocks and protect cash flow as conditions change.”
Sutton noted that businesses exposed to fuel, transport, fertiliser, and other globally traded inputs are particularly vulnerable, with disruption expected across construction, agriculture, logistics, and manufacturing supply chains.
At the same time, conditions remain uneven across the SME economy, with some sectors continuing to perform strongly.
Sutton added that the key risk for many businesses is not just higher costs, but the timing mismatch between rising expenses and incoming revenue.
“When costs move quickly but cash flow doesn’t, that’s when pressure builds,” Sutton said.
“Businesses that can scale funding up or down in line with their cash flow are far better placed to navigate uncertainty and respond to changing conditions.
“If businesses have concerns, they should be speaking with their finance providers early, don’t wait until the pressure is already building.
“We’re ready to support SMEs through both growth and disruption, but the key is acting early and having the right structures in place.”
[Related: Regional sectors hit hardest by fuel shock, NAB CEO warns]
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