Business confidence bounced back in January as the Omicron outbreak quickly peaked, and it may get a further boost on the reopening of international borders later this month.

But while there are signs consumers have also got over the Omicron shock, their mood has been dampened by the possibility of an interest rate hike by the Reserve Bank of Australia this year.

The National Australia Bank business survey for January showed confidence rebounded 15 points to an index of plus three.

“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,” NAB chief economist Alan Oster said on Tuesday.

Prime Minister Scott Morrison pointed to his government’s economic plan for the return in business confidence.

“A plan of lower taxes and cutting red tape, a plan that invests in infrastructure and skills development which sets us up for the future,” he told parliament on its first sitting of the year, and one of few before the May federal election.

But shadow treasurer Jim Chalmers said Mr Morrison and his treasurer Josh Frydenberg can’t take credit for a recovery if they won’t take responsibility for their role in the downturn.

“Scott Morrison’s stuff-ups have made a terrible time worse for workers and small businesses, right when they needed help the most,” Dr Chalmers told AAP.

Still, the pick-up in business confidence may continue into February after the government’s intention to open international borders from February 21.

Australian Retailers Association CEO Paul Zahra said this will be welcome relief for small businesses who are reliant on international tourists.

“Whilst this is a positive step in our COVID recovery, it will take years for international travel patterns to return to anywhere near pre-pandemic levels,” Mr Zahra said.

Meanwhile, the prospect of the RBA raising the cash rate for the first time in over a decade this year has undermined consumer confidence.

The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – fell 1.9 per cent in the past week to 99.9 points and just below the 100 mark that separates pessimists from optimists.

The fall coincides with the much-publicised commentary from RBA governor Philip Lowe that there was a “plausible scenario” in which the cash rate increases in 2022.

“That is a big shift from Lowe’s previous statements that interest rates may not go up until 2024,” ANZ head of Australian economics David Plank said.

The survey found respondents’ views on their current and future financial conditions fell to their lowest levels since late 2020, when the economy was recovering from the second wave of the pandemic.

However, separate data showed early signs that the impact from the Omicron variant on spending could be short-lived after taking a hit in late December and into January.

The Commonwealth Bank household spending intentions index fell 10 per cent to 103.8 in January, with Omicron likely accounting for a meaningful share of this drop.

The index combines an analysis of CBA payments data, loan applications and publicly available search activity on Google Trends.

“It is no surprise that spending intentions fell more than normal in January due to the spread of Omicron, with the biggest declines seen in the retail, entertainment and household services sectors,” CBA chief economist Stephen Halmarick said.

However, the bank’s latest credit and debit card data for the week ending February 4 shows a broad-based pick up in spending growth, suggesting consumer spending likely troughed in early January and has been steadily improving since.


Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)