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National Australia Bank’s (NAB) Business Survey, which has tracked confidence and conditions for more than 20 years, found business conditions fell 5 points to -1 index points in August, while business confidence fell 2 points to -8 index points.
Outside of the pandemic, when business conditions hit almost -30 index points, NAB’s reading has not been negative for over 10 years.
Confidence is also now 12 points below its January level and well below the long-term average, but substantially higher than in April, when the reading plunged to -29 index points following the outbreak of the conflict in the Middle East. This was the second-largest drop in the survey’s history.
At an industry level, business conditions fell across six of the eight industries surveyed by NAB, led by construction, mining, and manufacturing.
Conditions fell across all states except NSW and Tasmania, with Victoria and Western Australia recording the largest monthly declines, both down 13 points.
Cost-side pressures flow through
The fall in conditions was largely driven by a 10-point decline in profitability and a 5-point fall in trading conditions, with both subcomponents now sitting at new post-COVID-19 lows.
Employment remained in positive territory at 3 index points but dropped 1 point, while cost and price growth measures were broadly unchanged during the month and remained elevated compared to their long-run averages.
NAB’s head of Australian economics, Gareth Spence, said the survey showed cost-side pressures were increasingly flowing through to business profitability and activity.
“Cost growth has been running well ahead of product price growth for almost six months, and we are now seeing those pressures flow through more clearly to profitability and business conditions,” Spence said.
“Purchase cost growth remained elevated at 2.3 per cent in quarterly terms, while product price growth eased to 0.8 per cent. That widening gap is putting pressure on margins, with profitability falling 10 points in August to a new post-COVID low.
“The weakness is also becoming more broad-based across industries. Conditions fell across six of the eight industries surveyed, led by construction, mining and manufacturing, while trading conditions also moved lower.”
Policy and rate pressures
Commenting on the results, credit bureau CreditorWatch chief economist Ivan Colhoun said the negative reading also reflected rising oil prices and increased expectations of a further interest rate rise by the RBA board in late September.
He said: “This combination is evident in sharply weaker profitability and business conditions being recorded in sectors either using a significant amount of fuel as an input and/or sectors exposed to discretionary spending.”
Colhoun added that the situation “complicates” the Reserve Bank of Australia’s (RBA) decision at its September meeting.
“The activity and inflation signals starkly diverge,” he said.
“I am less confident in a September move after this print given the Board’s continuing revealed preference to over-weight negative activity and unemployment developments over the return of inflation to target, though recent communications suggest a reduced tolerance for any further delay in the return of inflation to target.”
Credit demand grows
Despite the deterioration in conditions, business credit demand has remained buoyant, while many businesses are still looking to grow.
According to the Australian Prudential Regulation Authority’s (APRA) Monthly Authorised Deposit-taking Institution Statistics, business lending hit $1.26 trillion in June, with a six-year record of $20 billion added during the month.
Another report published by the Australian Banking Association (ABA) found 40 per cent of SMEs sought finance from their bank, while credit provided by banks reached a record $750 billion in April 2026, up from $567 billion in April 2023.
Banks such as the Commonwealth Bank of Australia, Australia New Zealand Banking Group (ANZ), NAB, and Judo Bank have also recorded strong growth in their business lending books.
And according to non-bank SME lender Banjo, businesses are putting that credit to good use.
Banjo’s latest SME Compass Pulse survey found that more than half of SMEs achieved their revenue targets over the past 12 months, unchanged from six months ago, while 72 per cent expect to achieve or exceed their targets for the year ahead.
Speaking to Broker Daily, brokers have also commented on the growing interest in business loans, flagging a structural shift in the role and approach of those in the sector as business pressures and credit requirements shift.
NAB group executive, business and private banking, Andrew Auerbach, said the findings indicated clear pressure, but that it was being felt to differing extents across the country.
“Our customers tell us it’s tough out there. Higher costs, softer demand and ongoing uncertainty are putting some businesses under real pressure,” Auerbach said.
“While those challenges are being felt across the country, conditions vary across industries and regions.”
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