Businesses still suffering from consumer wariness, but signs of improvement ahead

The rising cases of omicron cases triggered consumer caution and staff shortages with a subsequent fall in profitability, trading conditions, and employment, with retail, transport and construction all suffering major downturns.

Despite this, the report found that business confidence rebounded to positive territory after the initial outbreak caused a sharp fall in confidence in December that signals that, even with the disruption, firms were optimistic that the outbreak would be short-lived, and consistent with this, forward orders remained steady.

Cost pressures remained elevated, with purchase cost growth reaching a record 3.4 per cent in quarterly terms and strong wage bill growth continued. On the output side, final product price inflation remained elevated, although retail price inflation eased somewhat.

With case numbers appearing to have peaked in late January, some staffing constraints should ease and conditions should improve in the coming months, but uncertainty remains about how quickly wider supply chain issues will be resolved.

“The Omicron outbreak has caused significant disruption, and that is reflected in a deterioration in business conditions to start the year,” said NAB Group chief economist Alan Oster. “The recreation & personal services sector remains hardest-hit, and several other sectors saw large impacts.

“Still, conditions have remained in positive territory and are nowhere near as bad as we saw during lockdowns imposed in 2020 and 2021.

“Confidence fell sharply in December as the Omicron variant began to spread, but rebounded in January, reflecting that the outbreak looks to have peaked quickly and lockdowns have been avoided.”