Retail and agriculture were the two least confident industries in Australia when it comes to business and the economy in December 2023, according to Roy Morgan.
Retail business confidence was 72.8 while agriculture confidence was 68.1.
Agriculture recorded a decline in confidence of 22.1 points from a year ago, and was the least confident industry throughout 2023, averaging 77.7.
Retail was down 3.7 points on a year ago and has experienced subdued retail sales in recent months as the pandemic savings buffer ran down.
Average annual retail sales growth in 2022 ran at a record high of 11.5% whereas in 2023 this figure dropped significantly to under 3.5%.
“The retail industry has faced a challenging period during the last six months, averaging only 62.5 since July and with business confidence of only 72.3 in December,” Roy Morgan CEO Michele Levine said. “Retailers have faced persistently high inflation, the highest interest rates for 12 years and a lull after the pandemic spending boom of 2020-22 that has seen retail sales growth plummet.
“Looking forward, the next six months look to include similar challenges although later in the year there is hope of a stronger end to the year with the potential for interest rates to be cut, inflation coming down and the stage 3 tax cuts increasing consumer’s take home pay from mid-year.”
Among the five least confident industries, retail and agriculture was joined by manufacturing (73.2), public, administration and defence (73.7), and transport, postal and warehousing (76.6).
The two industries to experience the largest falls in business confidence over the last year are transport, postal and warehousing - down 24.3 points to 76.6; and public administration and defence - down 24.2 points to 73.7.
In comparison, the top five most confident industries were electricity, gas and water (105.7), professional, scientific and technical services (108.1), education and training (114.1), community services (115.2) and administration and support services (115.9).
Overall, total business confidence across all industries was 91.1 in December 2023, up 5.3 points from the month prior.
Business confidence is now a large 20.1 points below the long-term average of 111.2 but 6.3 points higher than the latest ANZ-Roy Morgan Consumer Confidence of 84.4 for January 15-21, 2024.
The rebound in business confidence came after the Reserve Bank of Australia (RBA) left interest rates unchanged at 4.35% in its final meeting for the year in early December. The next RBA meeting on interest rates is on Tuesday, February 26.
“The RBA’s decision to leave interest rates unchanged at 4.35% in December has appeared justified in recent weeks with ABS annual inflation dropping to 4.3% for November 2023 – down from 4.9% (October 2023) and down by over 1% point from September 2023 (5.6%),” Levine said.
“This is the lowest inflation for two years since January 2022 and the first time interest rates have been higher than inflation since the early months of the pandemic when Australia experienced a brief period of deflation.
“The good news for businesses is that the RBA has not raised interest rates in the current cycle when the latest published inflation figure has been under 5% and all indications are that inflation is set to drop further in coming months to well under 4%.”
Despite the lift in business confidence, the index has now spent a record eleven consecutive months below the neutral level of 100 - the longest stretch in negative territory in the history of the index dating back over a decade to 2010.
Nearly two-thirds of businesses (64%) are expecting ‘bad times’ for the economy over the next year and 59% expect ‘bad times’ over the next five years.
However, 42.8% say they will be ‘better off’ financially this time next year compared to only 25.4% that say they will be ‘worse off’ – a positive net rating of 17.4% points.
Business confidence for December 2023 increased on the prior month, but is down by 4.9 points since December 2022.
The fall in business confidence from a year ago has been driven by falls in New South Wales - down by a large 21.6 points to 79.1; Western Australia - down by 5.4 points to 98.3; and South Australia - down by 3.5 points to 103.0. However, South Australia is still the highest of any state to end the year.
In contrast, there were increases in business confidence for Queensland - up 7.6 points to 89.4; and in Victoria - up 5.2 points to 100.5. In Tasmania, the index was virtually unchanged on a year ago at 94.4.
In December, 30.6% of businesses (up 1.5ppts), said their business is ‘better off’ financially than this time a year ago, while 45% (down 1.2ppts) said their business is now ‘worse off’.
Businesses grew more confident about their prospects for the next year in December, with 42.8% (up 5.7ppts) expecting the business will be ‘better off’ financially this time next year, while just over a quarter, 25.4% (down 1.6ppts), expect the business will be ‘worse off’.
Meanwhile, 35.2% of businesses (up 0.4ppts) expect ‘good times’ while almost 63.6% (down 0.7ppts) expect ‘bad times’.
Businesses were also negative on the longer-term outlook, with 37% (up 2.2ppts) expecting ‘good times’ for the Australian economy over the next five years while 58.7% (down 2.5ppts) expect ‘bad times’.
Views on whether now is a ‘good or bad time to invest in growing the business’ improved in December with 46.8% (up 5.1ppts) saying the next 12 months will be a ‘good time to invest’ in growing the business and 44% (down 5.8ppts) who say the next 12 months will be a ‘bad time to invest’.