The Australian business environment continues to face many challenges. Interest rates remain elevated, with the cash rate still in restrictive territory at 3.85 per cent. Real unit labour costs ticked higher in annual terms to 2.3 per cent in the December 2024 National Accounts, as productivity growth remained weak. Economic growth continues to recover, but weak consumer confidence accompanied by cost-of-living concerns points to a slow recovery in household expenditure.
As a result, Australian business conditions have continued to decline and are lower than they were before the pandemic, with NAB’s latest monthly business survey recording a further fall in April 2025 due to weaker profitability. While business conditions have declined across Australia, there are large differences across the states. Business conditions remain elevated in Queensland, where they are the highest in the nation, reflecting high profitability and positive trading conditions. Conditions are weakest in Victoria and South Australia, where they are below pre-pandemic levels due to weak profitability and employment.
Australian business confidence remains weak and is below its long run average, reflecting elevated pressures from higher wage costs and weaker profit margins. NAB’s April 2025 business survey found South Australia continues to have the weakest business confidence of the states, while it is highest in Queensland and Tasmania. Despite global trade uncertainty due to United States tariff policy, business confidence has not yet experienced a significant impact.
Alongside the weakness in business confidence, business investment remains below long run levels in most states and territories. As a share of gross state product (GSP), business investment was highest in the Northern Territory, accounting for 16.1 per cent of GSP in 2023-24, followed by Western Australia at 13.6 per cent of GSP and South Australia at 13.3 per cent of GSP. The ACT had the lowest share of business investment, at 7.0 per cent of GSP in 2023-24.
Expectations for capital expenditure over the next year have risen for most states, according to the latest December quarter 2024 ABS data. While this data is potentially impacted by rising costs, it provides an indication that businesses were increasing investment plans at the end of last year. Queensland recorded the highest increase, with capital expenditure expected to be 10.2 per cent higher than the previous year. The strong result in Queensland was driven by non-mining industries, where expectations rose by 13.0 per cent, while in mining, they increased by 4.7 per cent. Expectations for growth in mining capital expenditure in Western Australia were weak, at just 0.7 per cent on last year, following strong growth over the previous two years. Tasmania recorded the weakest capital expenditure expectations, with a fall of 10.8 per cent expected compared to the previous year.
While many businesses in Australia are still struggling to find labour, it is becoming less of a challenge. Just under 30 per cent of businesses reported it was a significant constraint on output in NAB’s March quarterly 2025 business survey, down from 34 per cent in December 2024 and much lower than the peak of 55 per cent in September 2022. However, weaker consumer demand has partly replaced it as a challenge, with many businesses reporting demand as a top issue, along with pressure on margins.
Company insolvencies have recently increased in all states and territories. This reflects challenging economic conditions plus some catch-up from exceptionally low insolvencies during the pandemic when there was significant support from government and lower debt recovery from the Australian Taxation Office. In the 12 months to April 2025, Tasmania recorded an 81.8 per cent increase in growth in company insolvencies compared to the previous year, the highest in the nation. This was followed by the Northern Territory, with an increase of 70.2 per cent in insolvencies, and the ACT which increased by 68.7 per cent. In New South Wales, company insolvencies over the 12 months to April 2025 were 25.4 per cent higher than the previous year, the lowest rise in the nation.