Business confidence index

IBISWorld forecasts business confidence to average 96.2 index points in 2025-26, rising by 0.17 index points from the previous year. The more confident outlook is driven by easing inflationary and cost-of-living pressures. Elevated capacity utilisation has also provided support for business confidence. Inflation remained outside the target band in November 2025 and the Reserve Bank of Australia (RBA) is expected to potentially raise the cash rate in 2026 to bring inflation back within the target band. Persistent inflation, elevated interest rates and the ongoing global and domestic economic uncertainty are expected to continue weighing on business confidence throughout the year. Tight labour market conditions are constraining business output, while elevated input costs are squeezing profit margins for some businesses, curbing increases in business confidence.

Australia's relative success in containing COVID-19 helped limit the pandemic's effects on business confidence. Over the September 2022 quarter, business confidence strengthened to be above average as capacity utilisation reached a record high. Nonetheless, material shortages and rising fuel prices increased purchase costs for most Australian businesses, while job vacancies also constrained output. Business confidence has since turned negative as concerns about the economic outlook have deepened, with labour shortages and inflationary pressures negatively affecting areas of the economy.

The business confidence index has been trending downwards over the past five years. Business confidence was elevated over 2020-21, fuelled by several support programs, including the Federal Government's JobKeeper wage subsidy. Stimulus measures implemented by state and federal governments have supported economic activity during the pandemic, leading to increased business confidence. As border and statewide lockdowns began to ease, pent-up demand and recovery in the tourism sector drove the index above 100 over the two years through 2021-22. However, robust demand and supply chain disruptions caused by significant events like the pandemic and the Russia-Ukraine conflict have led to an unbalanced demand-supply condition, driving prices upwards and forcing the RBA to intervene. Contractionary monetary policy, like a cash rate hike, is typically met with a fall in business confidence as consumers and businesses face more expensive credit and higher savings rates, encouraging them to reduce their overall spending. Inflationary pressures have prompted the RBA to hike the cash rate from May 2022 to the latest hike in November 2023. Cash rate hikes and inflationary pressures have weighed on business confidence in recent years. The elevated interest rate environment also contributed to Australia's slow economic growth and consumer demand in 2023-24. While economic growth slowed further in 2024-25, retail trade grew strongly thanks to a jump in the consumer sentiment index and cash rate cuts, offsetting further dips in business confidence. These trends have weighed on business confidence over the past five years. Despite this, IBISWorld forecasts business confidence to rise at an average annual rate of 0.17 index points over the five years through 2025-26, helped largely by the easing of interest rates in 2025, bringing relief to consumers and businesses.