Quarterly states and territories chart pack: business conditions and confidence weaken across all states

In brief

• Business conditions across Australia have weakened and are now below their long-run average, although performance continues to vary significantly by state. Conditions remain strongest in Queensland, Western Australia and Tasmania, and weakest in Victoria.
• Business confidence has declined sharply in every state and is now at its lowest level since the pandemic. South Australia continues to record the weakest confidence, while Tasmania remains the strongest.
• The conflict in the Middle East and higher interest rates are expected to weigh on economic growth, compounding pressures from rising wage costs and softer profit margins.

Australia’s business environment has deteriorated amid the conflict in the Middle East and higher interest rates. The conflict has contributed to broader inflationary pressures through higher fuel prices and disruption to global supply chains. The Reserve Bank of Australia has already raised the cash rate three times this year, by 75 basis points in total to 4.35 per cent. Economic growth slowed in the March quarter, with the full effects of the conflict in the Middle East and recent rate hikes yet to be felt. Consumer confidence has weakened significantly since the start of the year, foreshadowing a pullback in household spending.

Australian business conditions have declined for four consecutive months and are now below their long-run average. While business conditions have declined across Australia, there are large differences across the states. Business conditions are highest in Queensland, Western Australia and Tasmania, while conditions are weakest in Victoria.

Australian business confidence has fallen sharply and is at the lowest level since the pandemic according to NAB’s April 2026 business survey. The survey was completed before the recent Federal Budget, which may impact confidence and conditions in the coming months. Heightened global economic uncertainty has weighed on businesses, with business confidence now in negative territory across all industries. The survey showed a large decline in confidence of similar magnitude in all states. South Australia continues to have the weakest business confidence of the states, while it is highest in Tasmania.

Despite the weakness in business confidence, Australian business investment has picked up, although this has been driven largely by continued investment in data centres in New South Wales and Victoria. Nevertheless, business investment as a share of nominal GSP remains below the long run average level in most states and territories. Outside of data centres, business investment appears weak.

Australian capital expenditure plans, which are a leading indicator of business investment, were revised up by 4.5 per cent for 2025-26 in the latest March quarter 2026 ABS data. In addition, the second estimate for capex plans in 2026-27 was 11.1 per cent higher than the same reading in 2025-26. This strength reflects continued investment in data centres, although the measure also captures the effect of rising costs. Most states have seen a rise in expectations for capital expenditure over the next year. Victoria recorded the largest increase, with capital expenditure expected to be 21.9 per cent higher than the previous year, likely driven by continued investment in data centres. Expectations for growth in capital expenditure were weakest in Tasmania, down 2.9 per cent on last year.

The availability of suitable labour remains a significant challenge for many Australian businesses. According to NAB’s March quarter 2026 business survey, the share of businesses reporting labour availability as a significant constraint on output has increased from around 27 per cent in June 2025 to 32 per cent in March 2026. This has contributed to capacity utilisation remaining elevated and well above its long run average, adding to inflationary pressures. Slower economic activity in coming quarters may somewhat alleviate this, with businesses already reporting a decline in forward orders.

Company insolvencies have recently declined in most states and territories. This reflects a moderation from elevated levels over recent years. Those levels partly reflect a catch-up from exceptionally low insolvencies during the pandemic, when government support was significant and debt recovery from the Australian Taxation Office was lower. Company insolvencies in Western Australia fell by 14.3 per cent in the 12 months to May 2026, the largest fall in the nation. This was followed by the Australian Capital Territory, with a decrease of 13.6 per cent in insolvencies, and New South Wales, where insolvencies fell by 7.4 per cent. In Tasmania, company insolvencies over the 12 months to May 2026 were 2.1 per cent higher than the previous year, the highest rise in the nation.

NAB’s latest monthly business survey recorded a sharp rise in cost pressures in April 2026. According to business liaison in the Reserve Bank of Australia’s May 2026 Statement on Monetary Policy, a large share of consumer-facing businesses have not yet passed through higher costs to their prices. However, many businesses reported that they anticipated increasing prices by larger than usual in the year ahead.

Businesses continue to report that rising labour costs remain a challenge. Wage pressures, as measured by the Wage Price Index (WPI), vary across states and territories, reflecting different labour market conditions. Growth is highest in the ACT and Western Australia, at 3.7 per cent and 3.6 per cent over the year to the March quarter, respectively. Growth is weaker in the Northern Territory and Tasmania, with annual wages growth at 2.3 per cent and 2.9 per cent, respectively. The recent decision by the Fair Work Commission to increase the minimum wage by 4.75 per cent, which covers around 3 million workers, will add further upward pressure to labour costs. Given recent productivity outcomes have been very weak, a pick-up in productivity growth to the long run average will be important to ensuring wage increases are sustainable without adding to inflation.

The Middle East conflict continues to be a key risk to future economic growth. Much depends on the duration and severity of the disruption, as well as how households and businesses respond. The impact will not be felt uniformly across sectors. Some businesses continue to face greater pressures on profit margins and supply chain disruptions, while others are less affected.