What happens: According to the latest NAB Business Survey, analyzed by CreditorWatch chief economist Ivan Colhoun, Australian business conditions fell in November from +9 the month before.
Why this is important: Overall, the research continues to tell us that business capacity is limited and that if economic growth accelerates further from its current starting point, we could soon see additional pressure on prices,” said NAB chief economist Sally Auld.
Australian businesses emerged from the mid-2025 Trump tariff shock in relatively good health, but new challenges are piling up as capacity constraints and persistent inflation threaten the economic recovery.
The November NAB Business Survey published today shows that the business environment has eased from +9 in October to +7, marking a modest pullback from what had been a steady improvement since the collapse in tariff-driven confidence earlier this year. CreditorWatch chief economist Ivan Colhoun says the decline was evident across most sectors and states, with Western Australia and Queensland seeing particularly notable declines.
“Business conditions are improving compared to six months ago, when Trump’s tariff shock hit confidence, but this month they have fallen slightly to a still healthy level of +7,” Colhoun notes in his analysis of the survey results.
The more worrying development lies beneath the headline figures. Occupancy rose to 83.6%, the highest in 18 months, while operating revenue fell 6 points to +12 and profitability fell 5 points to +4.
“Overall, the research continues to tell us that business capacity is limited and that if economic growth accelerates further from the current starting point, we could soon see additional pressure on prices,” said NAB chief economist Sally Auld.
Mining and retail are leading the decline
Sectors that could have been expected to benefit from higher commodity prices showed unexpected weakness. Mining, retail and wholesale industries all posted weaker conditions in November, casting doubt on whether strong commodity prices have actually driven Australia’s recent improved economic data.
“This softens the idea that higher commodity prices are driving the recent stronger data in Australia, although the volatility means it is too early to rule this out,” Colhoun notes.
Victoria continues to record the weakest conditions nationally, although the state has shown improvement from the lows seen in the first half of 2025. Only the wholesale sector bucked the broader trend and maintained stable conditions.
Employment indicators rose by 1 point to +4, indicating a relatively stable labor market, in line with recent job vacancy data. However, this stability comes against a backdrop of increased capacity constraints that limit companies’ ability to respond to increased demand.
Inflationary pressures remain uncomfortably high
The inflation indicators from the survey paint a worrying picture for the Reserve Bank of Australia. Price indicators were largely higher in November, with quarterly purchasing costs at 1.3% and retail prices at 0.8%.
“Inflationary pressures remain uncomfortably high, with companies reporting rising input costs and high capacity utilization, both of which are inconsistent with inflation returning sustainably to the RBA’s target,” Colhoun warns.
His analysis shows that input costs never fell to levels broadly in line with the RBA’s inflation target of 2 to 3%, even when the central bank cut rates three times in 2025.
“The important thing for me is that, rather than inflation accelerating again, it looks like inflation has not returned sustainably to target as the RBA eased in 2025,” Colhoun said.
Interest rate increase scenario back on the table
The consequences for monetary policy are major. Colhoun believes that rate cuts cannot be considered in the short term, while the RBA will soon have to explore scenarios where rates may have to rise sooner than expected.
“That could be possible if average inflation in the fourth quarter were 0.9% quarter-on-quarter or higher,” he explains.
This represents a significant shift in the outlook. Earlier in 2025, major banks forecast multiple rate cuts, with some predicting cash rates would fall to 3.6% by the end of the year. The RBA has made three cuts this year, taking interest rates from 4.35% to the current 3.60%, but progress has stalled as inflation proves more persistent than expected.
The central bank kept interest rates on hold at its December meeting, with new data expected at 11:30 am on Thursday, providing crucial insights into the health and inflation trajectory of the labor market.
What companies should pay attention to
For entrepreneurs, the message is clear: prepare for an extended period of tight business conditions. With capacity utilization at an 18-month high, companies have limited room to expand production without significant investment or price increases.
Those planning expansion must factor in potentially higher financing costs if the RBA changes course, while companies struggling with input cost pressures may find it increasingly difficult to maintain margins without passing costs on to customers.
The research highlights that while Australia has avoided the worst effects of global trade tensions, its domestic economy faces its own set of challenges. Capacity constraints, persistent inflation and uncertain monetary policy create a complex business planning environment as 2025 draws to a close.
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