Business Confidence Surges as Inflation Declines, Hitting a Two-Year High

By Robert Heyward

Roy Morgan Business Confidence rose sharply in October 2024, increasing by 12.4 points to 106.7. This marked the most positive sentiment in over two years, driven by falling inflation and growing optimism about the Australian economy and business investment.

Key Drivers of the Increase in Confidence

The October rise in Business Confidence coincided with significant declines in inflation:

• Monthly inflation: Dropped to 2.1% in September, as announced in late October, down from 2.7% in August and 3.5% in July.
• Quarterly inflation: Reached 2.8% for the September quarter, its lowest level since March 2021 and within the RBA’s target range of 2–3%.

This decline in inflation has improved economic sentiment and heightened expectations of future interest rate cuts, aligning Australia with trends seen in central banks overseas.

Roy Morgan Monthly Business Confidence Australia

Improved Sentiment Across Key Indicators

• Financial outlook:
  • 46.3% of businesses (up 5.2 percentage points) expect to be better off financially in a year.
  • Only 20.6% (down 4.4 points) anticipate being worse off.
• Economic outlook:
  • 59% of businesses (up 6.8 points) expect “good times” economically over the next year, the highest level since February 2022.
  • Confidence about the economy over the next five years also rose, with 35.6% expecting “good times” (up 4.4 points).
• Investment sentiment:
  • 42.9% (up 6.9 points) believe the next 12 months is a “good time to invest” in growing their business.
  • Only 35.2% (down 10.4 points) consider it a “bad time to invest,” the lowest level since June 2021.

Business Confidence by State in October 2023 vs October 2024

State-by-State Analysis

Business Confidence improved across most states, with New South Wales leading at 111.6, followed by Queensland (105.7), Western Australia (105.2), Victoria (104.4), and South Australia (102.4).

Tasmania (89.0) was the only state with confidence below the neutral level of 100, reflecting political instability within its Liberal-led government.

Industry Performance

The most confident industries in September and October included:

1. Public Administration & Defence: 160.1 (+48.9 points year-on-year).
2. Education & Training: 127.3 (+6.7 points).
3. Finance & Insurance: 121.6 (+20.7 points).
4. Recreation & Personal: 112.0 (+16.9 points).
5. Professional, Scientific & Technical Services: 111.0 (+11.9 points).

At the lower end, industries like Transport, Postal & Warehousing (72.6), Mining (78.3), and Agriculture (85.7) reported subdued confidence, with the Transport sector consistently lagging throughout the year.

Business Confidence for Top 5 and Bottom 5 Industries in September & October 2024

Commentary from Roy Morgan CEO Michele Levine

“Roy Morgan Business Confidence surged in October, reaching its highest level since April 2022,” Ms. Levine said.

“This increase was driven by improved optimism about the economy and growing sentiment that the next 12 months is a good time to invest in business growth. The rapid decline in inflation, combined with expectations of potential interest rate cuts, has fostered greater positivity among businesses.”

Ms. Levine also noted strong performances across major states and industries but highlighted the need for targeted support in lagging sectors such as Transport, Postal & Warehousing, and Tasmania’s struggling economy.

Conclusion

Roy Morgan Business Confidence is now just 4.5 points below its long-term average of 111.2, signalling a steady recovery in sentiment as inflation declines and businesses prepare for a potentially favourable economic environment.

For more detailed insights, the Roy Morgan Business Confidence Report is available via subscription.

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