Economic commentary

October 23, 2025

Conditions and confidence positive in Q3

By NAB Group Economics

Business conditions rose by 5pts to sit at the highest level since Q2 2024 and are now above the long-run average. The rise was driven by gains in all subcomponents, led by profitability which rose from -4pts to +4pts. Business confidence continued its upward trend improving for the fourth consecutive quarter and is now in positive territory for the first time since Q4 2022. Leading indicators point to ongoing momentum with forward orders turning positive after 5 consecutive quarters of improvement and expected conditions over the next 3 & 12 months rose to multi-year highs. However, the two biggest issues impacting confidence continue to be wage costs and margin pressure. Capacity utilisation also picked up in the quarter after remaining relatively flat over the past year, suggesting that the supply-demand balance may be beginning to retighten. Overall businesses in Q3 maintained positive momentum with both conditions and confidence in positive territory for the first time since 2022 despite some indicators implying that there are underlying capacity pressures which remain.

Survey details

• Business conditions improved by 5pts (unrounded) to 6 index points. Profitability rose back into positive territory at +4 index points, while trading conditions and employment more than retraced falls in Q2.
• By industry, conditions improved most in manufacturing (+10pts), retail (+9pts) and finance, property & business services (+8pts). Transport and mining conditions fell the most (-12pts and -7pts respectively) partially retracing gains in both industries in the quarter prior. Conditions were weakest in retail and manufacturing.
• By state, conditions saw outsized gains in SA (+16pts) and there were more moderate improvements in WA, NSW and Vic (+7, +6 and +5pts respectively). Qld was the only state which fell in the quarter, edging down 0.5pts. In level terms, conditions are now positive in all states and is now strongest in SA. 
• Business confidence rose 3pts (unrounded). Despite remaining below the long-run average it is the best result since Q3 2022. Confidence improved across all states. Retail, wholesale and mining industries led gains while transport and construction fell. 
• Leading indicators generally improved in Q3. Expected business conditions over 3 and 12-months rose 4 and 3pts respectively while forward orders rose 2pts (unrounded). Capex plans over the next 12m fell 1pts and capacity utilisation rose to 83.0%.
• Constraints on output was mixed. The share of businesses reporting significant constraints from labour and materials rose but fell for sales and premises. By historical standards, labour constraints remain an issue, however labour cost growth has remained subdued.
• Reported costs growth was unchanged – labour cost and purchases costs held at 1.0% and 0.8% respectively.
• Retail price growth eased by 0.2ppt to 0.4% qoq, the slowest growth since mid-2020. Final product price growth was unchanged for the third quarter in a row at 0.4% q/q.
• Wage costs were again the top issue affecting business confidence, followed by pressure on margins, unchanged from the previous quarter.

For more information, please see the NAB Quarterly Business Survey (Q3 2025) (PDF, 928KB)