The improvement in aggregate business conditions in Australia during the June quarter continues to be driven by larger businesses, Westpac said in a Thursday report.
The Westpac Business Performance Gauge, which represents the ratio of operating revenues to operating expenses, rose 0.2% quarter-over-quarter in the June quarter, a softer pace than in recent quarters, while the Westpac Cashflow Gauge, which represents the ratio of operating revenues to operating expenses plus liabilities, rose 0.3%.
Both gauges remain around 1% higher than a year earlier.
Aggregate revenue growth in the second quarter was concentrated in business-to-business and government-related activity. Total operating expenses rose 2.7% quarter-over-quarter, due mostly to a 12% increase in fuel costs. Debt-servicing costs rose just 0.2% on a quarterly basis but are 11% higher than year-over-year. A further 50 basis points of tightening expected through the September quarter will add to debt-servicing costs.
The Commercial Operating Gauge rose 0.2%, and the Large Corporate Operating Gauge rose 0.1% on a quarterly basis over the period, with annual growth of 1.2% and 1.4%, respectively. This annual result was the strongest outcome for large corporates since the September quarter of 2024.
The SME Operating Gauge fell 1.3% as costs outpaced revenues. SME conditions deteriorated broadly, with 12 of the 15 industries recording a decline. Agriculture, wholesale trade, and transport were the only industries to record gains.
Westpac's Industry Performance Gauge was flat over the period, with conditions improving in eight of the 15 industries.
Business conditions are expected to become uneven in the next 12 to 18 months, with gross domestic product growth expected to slow to around 0.7% on an annual basis by year-end, before gradually recovering in the next year. However, investment-related activity, including data centers, defense, infrastructure, and residential construction, is set to continue to support certain portions of the economy.