Australia’s business confidence improved strongly in July despite inflation and rising interest rates clouding the outlook, survey results from NAB showed on Tuesday.
The business confidence index rose to +7 in July from +2 in June.
The rise in July was primarily due to an improvement in capacity utilization, which rose to a new record level of 86.7 percent in July from 84.9 percent in June, suggesting the economy could be running up against capacity constraints.
Among sectors, confidence in the construction sector grew the most, by 25 points, and this was followed by the retail sector by 19 points. The morale also strengthened in the wholesale, mining and manufacturing sectors.
The business conditions index rose 6 points to +20 in July. All three components of conditions improved, with trading conditions up 7 points, profitability up 3 points and employment up 6 points.
Further, the index remained above its average and the strength in conditions is more evident in the construction sector, the survey said.
With businesses running at close to full capacity and unemployment at 3.5 percent, materials and labour are becoming ever-more expensive, driving prices higher, NAB Group Chief Economist Alan Oster said.
“That cycle is likely to continue until demand starts to soften more materially, which we expect to occur over the coming months as higher interest rates begin to weigh on household budgets,” added Oster.
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