Australian business conditions softened further in Q2 2025, falling to their lowest level since Q3 2020, according to the latest NAB Quarterly Business Survey.
Trading and employment indicators weakened, while profitability remained in negative territory.
However, NAB Economics noted signs of resilience in sentiment, with business confidence improving slightly – now at its strongest level since late 2022, though still sitting below long-run averages.
On the consumer side, sentiment in Australia edged up 1.7% in July, with households showing cautious optimism about the economic outlook despite the Reserve Bank’s unexpected rate hold, Westpac-Melbourne Institute data shows.
NAB reported that business conditions declined by 1pt to 0 index points, with profitability falling to -4pts. Trading and employment indicators also eased by 2 and 1pts respectively.
“Business conditions eased to their lowest level since Q3 2020. Falls in the trading and employment components were the drivers, while the profitability component remained weak,” NAB economists Tony Kelly and Gareth Spence (pictured, left to right) said.
By sector, the steepest declines were seen in finance (down 16pts) and retail (down 13pts). In contrast, mining surged 35pts, while conditions also improved in transport, business services, and property.
Retail, manufacturing, and wholesale sectors posted the weakest conditions overall.
Despite soft conditions, business confidence rose by 3pts, climbing to -1 index point – a modest but important recovery.
“Business confidence trends are more positive, with another gain but it is still below its long run average,” Kelly and Spence said.
The improvement was broad-based, with notable confidence gains in mining, finance, construction and transport, though sentiment in retail and wholesale declined further.
Forward-looking metrics showed modest improvement, suggesting businesses are cautiously optimistic about the second half of 2025.
“Forward orders have clearly come off their trough but were still below their long-run average, while future capex intentions reversed a large part of the Q1 decline,” the NAB economists said.
The survey found that labour availability is less of a constraint than it was in earlier quarters, though still a concern compared to pre-COVID conditions.
“The number of businesses indicating that labour availability remains a significant constraint again fell – that said, it is still high relative to pre-COVID levels, and many businesses still flag it as an issue (even if now more minor),” the economists wrote.
Sales, premises, and materials constraints were either unchanged or eased, indicating supply chain and demand-related pressure may be abating.
The Q2 report also highlighted that retail price growth has slowed significantly, reaching its lowest level since early 2021.
“Retail price growth was at its lowest since early 2021,” NAB said. “Final product price growth remains more muted, and at 0.4% q/q was unchanged from recent quarters.”
Overall cost growth was steady, with labour costs rising just 0.1ppt, and purchase costs easing by the same amount.
Businesses continued to cite wage costs as the top issue affecting sentiment, though to a lesser extent than in previous quarters.
“Wage costs remained the top issue affecting confidence (but less so than in the recent past), followed by margins and federal government policies, with demand seen as less of an issue this quarter,” the NAB economists said.
