91ÉçÇø

After three RBA rate cuts through 2024-25 brought welcome relief to businesses and briefly lifted confidence to its highest level since late 2023-24, the reprieve proved short-lived. According to the RBA's February 2026 Statement on Monetary Policy, underlying inflation re-accelerated in the second half of 2024-25, rising to 3.4% by the December 2025 quarter, above the RBA's 2 to 3% target band, driven by broad-based price pressures across services, retail goods and construction. Compounding the resurgence of inflation was the expiry of state electricity rebates, which pushed the headline figure further to 3.6%. The RBA responded by raising the cash rate in February 2026 for the first time in over two years, before hiking twice more by May 2026, fully reversing the 2024-25 easing cycle and returning the cash rate to 4.35%. For many businesses, this reversal erased the borrowing cost relief that had begun to flow through the economy, reviving concerns about margin pressure and softening consumer demand.

The deterioration in confidence over the latter part of 2025-26 has been particularly sharp, with the major culprit being the outbreak of the Iran-Israel conflict in early 2026, which triggered a global oil price shock and drove the NAB monthly business confidence index to -29 in March 2026, which NAB identified as the second-largest monthly drop on record and the weakest reading since the COVID lockdowns of April 2020, as rising fuel costs, renewed inflation and deteriorating global trade conditions weighed heavily on businesses. Looking at the past three years more broadly, business confidence has been gradually eroded by a succession of overlapping pressures. The rapid cash rate hiking cycle between May 2022 and November 2023 left many businesses navigating expensive credit and compressed margins well into 2023-24. While conditions began to stabilise as rate cuts took hold through 2024-25, the re-acceleration of inflation and subsequent return to monetary tightening has reinforced a pattern of sustained uncertainty. According to NAB's Q1 2026 Business Survey, wage costs have remained the top concern for businesses throughout this period, with labour market tightness continuing to constrain output and push up operating costs. These pressures, alongside the renewed rate hiking cycle, have weighed on business confidence over the three years through 2025-26. 91ÉçÇø forecasts business confidence to average 94.5 index points in 2025-26 as a result, falling by 1.7 index points from 2024-25.