Private Credit Weekly Insights, 19 December

Australian Economy Weekly Update — Week Ending 19 December 2025

The NAB Monthly Business Survey for November points to a modest softening in business sentiment as 2025 draws to a close, following a period of stronger readings earlier in the year. Both business conditions and confidence eased over the month, suggesting some loss of momentum in the private sector, although overall activity remains in positive territory. Firms appear increasingly cautious about the near-term outlook, whilst labour demand and capacity utilisation remain elevated.

Business confidence fell back to just above zero, reversing part of the improvement seen earlier in the year. The decline was broad-based across industries and states, reflecting ongoing uncertainty around demand and costs. Business conditions also softened, driven by weaker trading conditions and profitability, while the employment sub-index held up, suggesting firms remain reluctant to reduce headcount despite softer activity indicators. Forward orders declined, pointing to slower growth in coming months.

A notable feature of the survey was the further rise in capacity utilisation, which remains well above long-run averages and near its highest level in around 18 months. This underscores the ongoing presence of domestic supply-side constraints and helps explain why cost pressures remain persistent despite some easing in demand. Purchase costs rose again in November, labour cost growth remained elevated, and final price growth was modest but sticky, reinforcing concerns that inflation pressures may prove slower to dissipate.

These results sit within a broader domestic macro environment where weak productivity growth remains a central challenge. Persistently low productivity is effectively lowering the economy’s non-inflationary speed limit, meaning that even moderate rates of economic growth risk generating inflation pressures when capacity is stretched. In this context, the combination of high capacity utilisation and subdued productivity growth limits how much demand can expand without pushing inflation above the target band.