Conditions and Confidence fall further - NAB Business Survey Q2 2026

Summary

Business confidence dropped sharply in Q2, with businesses pointing to uncertainty from the Middle East conflict and the federal budget as drivers. The share of businesses reporting geopolitics or federal government policies as issues affecting confidence rose ~16ppt and ~7ppt respectively, while the remainder of the other top 5 issues last quarter declined. Business conditions fell 5pts to 2 index points with falls in all three subcomponents. The forward-looking indicators were also soft across the board in the Q2 survey. Business expectations for conditions both 3- and 12-months ahead fell notably, while capex plans for the next 12 months and forward orders also declined. Capacity utilisation fell to 82.0%, reaching a new multi-year low but remaining above the long-run average. These themes align with the results of the timelier Monthly Survey. The quarterly survey includes constraints on output, and here the share of firms reporting labour as a significant constraint fell 5ppt, more than unwinding its increase over the past couple of quarters. Overall, the Q2 survey appears to confirm the signal from the Monthly survey: lower confidence, cooler but relatively resilient conditions, and some easing in capacity pressures.

Details

• Business conditions fell 5pts to 2 index points. Trading conditions and profitability led the fall, both declining 6pts while employment was also soft falling 3pts. Conditions fell below their long-run average for the first time since June 2025.
• By industry, conditions fell in all sectors except mining (+1pt), the largest falls were seen in recreation & personal services (-8pts) and transport & utilities (-7pts). Following another fall in conditions in most industries, 4 of 8 now sit in negative territory, up from 3 in the previous quarter.
• By state, conditions fell across all regions except WA and Tas. Vic fell 12pts and is the weakest region by some margin at -6 index points. NSW also saw a large fall, declining 6pts to 0 index points.
• Business confidence fell 13pts to -19 index points and now sits 22pts below its long-run average. The Middle East conflict and the budget have been evident in the shock to confidence. Confidence saw double-digit falls across manufacturing, services and retail, and sits in negative territory in all industries.
• Leading indicators were negative or flat in Q2 with some seeing large falls. Expected business conditions in both the near and long-term fell more than 10pts. Both forward orders and capex plans over the next 12 months fell (5pts and 8pts respectively). Capacity utilisation fell 0.8ppt to its lowest level since Q3 2021.
• Constraints on output showed a notable decline in the share of businesses reporting significant constraints from labour while premises also eased. Both materials and sales were increasingly reported as a constraint on output.
• Reported costs growth for labour remained at 1.0% qoq while purchase costs growth rose 0.7ppt to 1.6%.
• Retail price growth rose 0.3ppt to 0.9% qoq. Final product price growth edged up to 0.6%.
• Wage costs were again the top issue affecting business confidence, while federal government policy rose to the second most reported issue. There was also a 16ppt rise in the share of businesses reporting geopolitics as an issue affecting confidence.

Read the full NAB Business Survey - Q2 2026.