National Australia Bank Ltd (ASX: NAB) became just the latest bank to announce job cuts when it told investors yesterday that it would be slicing 2,500 positions – 6% of its total workforce – over the next 9 months, with 1,500 of those people to be gone before the end of the year.
It won’t be the last.
The banking sector is in the middle of a perfect storm, and the story neatly summarises three or four key elements of the Australian economic and business scene as we start to close out 2026.
Let’s take each in turn.
First, economic growth is slow. And by the RBA’s telling (and in the view of most economists), it can’t really grow much faster without making inflation worse. Why? Productivity. Any increase in demand would outstrip the economy’s ability to increase supply. And when demand growth is higher than supply growth, prices go up.
So, if you’re one of a handful of very large players in a concentrated market, the economy’s ‘speed limit’ becomes your speed limit, too, unless you can take market share from your competitors.
Second, within a sluggish economy, you have a sluggish property market, with both sales volumes and prices taking a hit. A dress shop’s inventory is dresses, but a bank’s inventory is money – and if fewer people are borrowing, and those that are, are borrowing less – then slowing growth (or a decline) in the property market compounds the problems of a slow economy.
Third, let’s return to inflation. As we’ve seen in recent months, businesses whose sales are growing slowly generally find that sales growth swamped by cost growth – wages, electricity, insurance, and more. And when costs grow faster than sales, profit goes backwards. Even if sales growth keeps up, or maybe even gets its nose in front, profit growth is still very hard to come by.
Fourth, AI. Yes, you knew it was coming. These days, something like $6 in $7 spent in our economy is spent digitally (the other $1 in $7 that’s spent using cash is now so small, Armaguard is facing serious challenges in remaining profitable). And if your business has become overwhelmingly digital, two things will be increasingly true: much of what your workers do can be done by AI, and if you don’t grasp that opportunity, you’ll probably be disrupted by someone else who does.
Last, and pretty much as a consequence of all of the above, is competition. When there’s not much growth to go around, you have to work harder to get it, and much of what you want will have to be wrested out of the arms of your competitors. Banking in Australia seems like an oligopoly from the outside, but the numbers tell us that bank margins are flat-to-down over the past half-decade or so, at a time when rising interest rates would have been expected to boost margins. (It’s considered, and has generally been true in the past, that rising mortgage rates can be passed on, and banks give less of an increase to depositors, keeping the difference. That hasn’t been true, in the last few years.)
Now, none of these are predictions, per se. They are descriptions of the challenges facing business in general, and banking in particular.
It’s entirely possible that NAB, or its competitors, buck those challenges and come out on top. If they do, it may well be through cost cutting, which takes us back to where we started.
But also, those challenges will face many/most Australian businesses, and likely are, already.
At a policy level, it’s a reminder of why productivity is so important. It is the only thing, other than population growth, that can improve living standards. And arguably, once we hit a decent level of economic scale, even population growth only adds marginally, if at all, on a per-person basis.
Our ability to do more, with the same, is what allows us to enjoy greater prosperity.
Without it, and without economic growth, businesses will resort to trying to do the same, with less, instead.
I am very bullish on the opportunities that AI will present to us for improving productivity. I’m using it, increasingly, in my work and home life. It won’t be a panacea, but it will be a huge benefit, in my view. It will, though, potentially present significant challenges, in particular to employment in the short and maybe medium term, if jobs are lost at a greater rate than the economy can create new ones.
And in the meantime, while many companies will use AI to try to do more, and move faster, many who find themselves constrained by circumstance will use it to cut costs, instead. That may present significant challenges to our medium-term economic growth, and will also put increased pressure on the Federal Budget, if it comes to pass.
And what does that mean for investors?
It means that we need to understand the potential changes that some of those forces might bring. Not so that we can try to ‘front run’ the changes, or to try to time the market. Those things are somewhere between difficult and impossible to do to any significant and repeatable extent.
But it does mean being aware of the risks of disruption and competition, and to the challenges of sustained low growth in a high-inflation environment. It also means an increased focus on a company’s debt levels and interest costs.
What it doesn’t mean, though, is that we should swing for the fences and/or jump on the AI bandwagon without doing appropriate due diligence. Remember, the internet was world-changing, but most of the value from the internet wasn’t captured by those who provided the hardware. Yes, it spawned some software winners, and some companies who couldn’t exist without the internet, but most of the value from that new technology ended up in the hands of consumers, thanks to the new products and services the internet made possible.
Personally, and on behalf of our members, I’m looking very closely at which businesses could be caught in the low growth and/or AI disruption traps. I’m looking closely at balance sheets, and competitive advantages. And I’m looking closely at how businesses are confronting their realities and thoughtfully embracing the potential of AI.
And I’m remembering the ‘value chain’ – who is capturing the value from a given activity. As I’ve written before, the winners from the explosion in air travel weren’t the airlines, but the airports (and travellers, who benefitted from far lower airfares). Carefully reviewing who gets what part of the pie is vital, particularly as new technologies emerge and economic conditions continue to be tough.
Then, a reminder. Two, actually. First, you don’t need to know everything. It’s okay to simply say ‘I don’t know’ and leave an investment on the shelf (or put one you own back on the shelf, if your conviction wavers). Second, being a long-term investor means you’re buying to hold, hopefully for years and decades, but if circumstances change, we absolutely should change our minds. So don’t be wedded to an idea if and when disruption means it ends up sitting on shifting sands.
Lest this finish on a down note, though, let me return to my usual optimism. The last few hundred years has been a story of disruption and adjustment. And that process, while lumpy, has contributed to extraordinary increases in economic prosperity, but also living standards in general.
While the future will likely also be bumpy, I think it remains very bright. We have not yet hit peak humanity, but we do need to be ready to ride the waves that will come up on that journey.
Fool on!
The post What NAB's job cuts mean for all investors appeared first on The Motley Fool Australia.
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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
