Business conditions, sentiment fall in June qtr


Latest ACCI Survey of Investor Confidence points to general fall in actual business conditions and dented confidence

July 13, 2010

The latest Australian Chamber of Commerce and Industry (ACCI) Survey of Investor Confidence points to a general fall in actual business conditions and dented confidence over the June quarter.

Today’s result comes amid two successive interest rate hikes in April and May as well as growing concerns about the global economic outlook.

Despite the current indexes of own business conditions, sales and profitability falling over the June quarter, only the latter is in contractionary territory, indicating business conditions and sales remained positive over the last three months.

Expectations for all three indexes have edged down from record high levels, indicating businesses’ optimistic projections have begun to plateau.

While future expectations for national economic conditions and climate for investment remain positive, actual indexes for these two indicators have fallen into contractionary territory.

These have fallen along with forward projections of GDP growth and business investment, suggesting businesses have become less optimistic the Australian economy is back in full recovery mode.

‘STRONG CASE’ TO HOLD RATES

ACCI Director of Economics and Industry Policy, Greg Evans, says overall the survey highlights general business conditions have edged down over the June quarter along with an unwinding of overly optimistic business expectations recorded since the second half of 2009.

"Nonetheless, all the actual and expectations indicators remain above the levels recorded 12 months earlier, indicating that businesses consider that the economy is recovering, albeit at a slower pace that previously predicted," Evans says

"It is encouraging to see that business employment is expected to remain resilient over the next six months. However, it is concerning that profitability remains weak amidst rising labour and finance costs. Thus, we still consider there remains a strong case for the Reserve Bank to leave the official interest rate unchanged in the period ahead," he says.

OWN BUSINESS CONDITIONS

In terms of ‘own business conditions’, which asks respondents to makes a general evaluation of their business, the current conditions index edged lower from 54 to 52.7.

Meanwhile, the ‘expected conditions’ index fell over the quarter from 61.6 to 58, to be 2.5 points below its five year average of 60.5.

The index of own sales - current, which shows the rate of growth of sales, decreased from 52.2 to 50.4 over the last three months.

The index of own sales - expected fell 4.4 points over the quarter to 57.7, but remains 1.5 points above the level recorded in the June quarter of 2009.

Expected profitability declined 2.4 points to 54.1; expected level of activity fell from 57.6 to 54.7; and expected level of investment from marginally from 44.6 to 43.2.

On a positive note, the index of expected number of full-time employees remained stable at 50 over the last three months, almost on par with its five year average of 50.9.

NATIONAL ECONOMIC CONDITIONS

The index of national economic conditions - current, which measures business’ evaluation of the general state of the Australian economy, edged 1.1 points lower to 48.9, after a 5.2 point jump over the last 12 months.

The index’s fall into negative territory indicates businesses are unconvinced the Australian economy is back in full recovery.

Businesses expect national economic conditions to deteriorate over the next three months, with the index of national economic conditions – expected falling 5.4 points to 53.3 in the June quarter.

The climate for investment - current index declined marginally from 45.2 to 44 over the last three months, to be 4.5 points stronger through the year.

The top ten constraints on investment include: business taxes and government charges; insufficient demand; State Government regulations; local competition; non-wage labour costs; Federal Government regulations; charges by lending institutions; wage costs; availability of suitably qualified employees; and level of interest rates.

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