It's no secret that 2025 has been a year of ups and downs in business confidence, earmarked by volatility in markets, driven by broader geopolitical uncertainty.
And uncertainty seems to be the dominant theme of the year so far. This has its own impacts here locally, measured by the sentiment of both consumers and business alike.
And whilst business confidence nudged up slightly last month, according to the Roy Morgan survey, it remains well below historical levels.
Not that you'd notice by looking at the S&P/ASX 200 index (ASX: XJO). It continues to track higher over the past few months.
But what does all this mean for the new financial year? Let's dive in and see.
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Why has business confidence "modestly" improved?
Business confidence in Australia ticked up by 2.9 points to a level of 99.6 in May 2025, according to Roy Morgan's latest survey data.
This might seem positive, this is still below the "neutral level" of 100. The survey itself was made up of more than 1,200 responses.
Plus the survey also notes that "in the weeks after the Federal Election in late May 2025, Business Confidence dropped by 2.9 points".
And while the recent Federal Election has reportedly sparked some optimism, Aussie businesses are still cautious about their own financial prospects heading into FY26.
The election result produced mixed results across the five questions that comprise the Business Confidence index with more confidence around the long-term prospects for the Australian economy (32.6%, up 6.1% points, expect 'good times' over the next five years) and greater confidence that the next 12 months is a good time to invest in growing the business (42.1%, up 3.9% points).
In contrast, there was less confidence about businesses own prospects with only 32.3% (down 3.7% points) expecting to be 'better off' financially this time next year (the lowest figure for this indicator for a decade since August 2015) and only 22.5% (down 1.8% points) saying they are 'better off' financially than this time a year ago – the lowest figure for this indicator for five years since August 2020.
Where were the changes?
It was Queensland that came in with business confidence above the neutral mark at 105, up 6.5 points from last year. Victoria's confidence also lifted to 98.3.
But Western Australia and NSW each saw sharp declines. Whereas our southern neighbours in Tasmania? Results showed a low of 86.9 in the latest survey numbers.
Industry wise, accommodation, and education came in comfortably above the national average. On the flip side, agriculture, forestry & fishing remains the least confident sector at just 68 from a maximum 100 points.
Impacting the outcome was a clear tilt towards global trade uncertainty, sparked earlier this year.
The Reserve Bank of Australia's Assistant Governor of Economics, Sarah Hunter, noted the impact of global trade decisions and their impact on the local economy in a speech last month.
Hunter also mentioned the impact this has had on markets, and the "compensation" investors now demand for putting their hard earned funds to work.
…increased uncertainty and risk led investors to require larger risk premia to hold risky assets. This was reflected in increased spreads on corporate bonds, and some increases in equity risk premia that put further downward pressure on equity prices.
In other words, investors wanted more compensation for holding riskier assets.
Meanwhile, Roy Morgan's CEO, Michele Levine acknowledged that the slight increase of business confidence in the firm's latest survey "was not widespread", and was driven "entirely by two indicators" relating to Australia's long-term economic growth.
It already looks like it will be an interesting start to the new financial year.
So what does this mean for FY26?
Business confidence is a critical indicator for the Australian economy. It's also a gauge of the current investment climate.
So the fact Roy Morgan's current data suggest there is some optimism about Australia's long-term prospects is somewhat promising.
But at the same time, it's crystal clear that businesses remain wary of their immediate futures.
Whether or not there is widespread hesitation, or whether this could translate into more conservative spending and hiring decisions in FY26 remains to be seen.
In saying that, it's best to keep a close eye on any upcoming economic data and global events.
