Australian business confidence has collapsed at its fastest pace in years, with NAB's Q2 2026 Quarterly Business Survey recording a 13-point drop to -19 index points — sitting 22 points below its long-run average. The Middle East conflict and the federal budget were cited as the primary drivers, with the share of businesses flagging geopolitics as a concern jumping approximately 16 percentage points in a single quarter.
The survey, which covered around 687 firms across the non-farm business sector between 25 May and 11 June, found confidence in negative territory across every industry. The result confirms what NAB's monthly survey had already flagged: conditions are cooling. Westpac's real-time Nowcast model, released the same week, pointed to GDP growth of just 0.2% in Q2 2026 with a 27% probability of outright contraction — with Senior Economist Pat Bustamante warning that "a sharper-than-expected slowdown complicates the policy trade-off for inflation control."
Despite the confidence shock, business conditions proved more resilient, falling 5 points to 2 index points — still marginally positive, though below their long-run average for the first time since June 2025. Trading conditions and profitability led the decline, each dropping 6 points, while employment eased 3 points. Four of eight industries now sit in negative conditions territory, up from three the previous quarter.
The forward-looking picture offers little comfort. Expected conditions for both the near and long term fell more than 10 points, capital expenditure plans for the next 12 months dropped 8 points, and forward orders turned negative — a combination that points to further softening in business activity through the second half of 2026.
By state, the divergence is sharp. NSW fell 6 points to zero, while WA bucked the national trend, recording conditions of +13 — the strongest of any state. Victoria is the standout weak spot, plunging 12 points to -6 index points and sitting as the weakest region by a considerable margin.
For brokers advising business clients, the cost environment adds another layer of concern.
Purchase costs growth rose 0.7 percentage points to 1.6% quarter-on-quarter, while retail price growth edged up to 0.9%. Wage costs remained the single biggest issue affecting confidence, reported by 57.8% of firms, with federal government policy rising to second place at 45.6%. With margins under pressure and sales increasingly cited as a constraint on output, SME clients are likely to be reassessing their funding needs — making debt restructuring and working capital conversations increasingly relevant for brokers in the months ahead.
Capacity utilisation fell to 82%, its lowest level since Q3 2021, though it remains above the long-run average. That backdrop helps explain why the RBA held the cash rate at 4.35% at its June meeting following three consecutive hikes — acknowledging tighter financial conditions and slowing activity while stopping short of signalling any near-term relief, with inflation still running above its 2–3% target.
NAB's summary characterised the overall picture as "lower confidence, cooler but relatively resilient conditions, and some easing in capacity pressures." With capex plans down, forward orders negative, and confidence 22 points below its long-run average, brokers should expect cautious business clients and tighter lending conversations well into Q3.
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