Business confidence in Australia fell 29 points to negative 29 in March, its lowest level since April 2020 and one of the sharpest declines since the global financial crisis and COVID-19, following the Middle East conflict, National Australia Bank (ASX:NAB) said in a Tuesday report.

Business conditions remained at 6 index points, slightly below the long-run average of 7, as an improvement in employment was offset by declines in trading and profitability.

"The divergence between confidence and conditions highlights how quickly sentiment can respond to global shocks, even as activity data remains more stable in the near term," said Gareth Spence, NAB head of Australian economics.

Industry conditions were mixed, with mining and transport and utilities recording the strongest gains, while wholesale experienced the largest decline, the report added.

By state, conditions improved in Western Australia and South Australia by 17 and 9 index points, respectively, while Victoria recorded the largest decline, falling by 11 points.

Capacity utilization rose past 83% and remained well above its long-run average, while forward orders fell 7 points back below their long-run average, and capital expenditure declined 3 points, reversing last month's increase but still staying elevated.

"The impact on measures of costs and prices has been immediately obvious, with purchase cost growth in quarterly terms more than doubling to 3% and product price growth rising to 1.1%," Spence added.