Business confidence continues to take a battering

Dun & Bradstreet survey bearish for the September quarter though better times are forecast

By Rob McKay | July 5, 2011

July 5, 2011

Business confidence continues to dissipate in Australia, according to Dun & Bradstreet’s Business Expectations Survey for the September quarter - though there does seem to be a silver lining.

Profit and employment expectations have fallen into negative territory for the first time in two years and sales expectations, while still in positive territory, have also hit two year lows, the accountancy firm reports.

It says sentiment has returned to levels seen two years ago in the depths of the Global Financial Crisis.

However, some optimism appears to persist, with the rate of concern for certain leading issues easing off.

Interest rates and wages growth led the primary areas of concern for surveyed executives, though interest rates is trending downward to 27 percent of them , down from 40 percent in December, while wages was unchanged at 23 percent.

The next highest areas of significant concern was fuel prices but this eased 8 percent to 18 percent in the past three months, while the access to credit fell 2 percent to 17 percent.

Sales expectations are now at their lowest level in two years is flowing through to the outlook for profits.

This in turn is underlining negative employment expectations, already under pressure from wage rises.

Dun & Bradstreet Chief Executive Christine Christian believes the data show a persistent de-leveraging trend in line with a mentality of increasing caution.

"We are unlikely to see an improvement in the service and manufacturing sectors in the near future and this is breeding a culture of caution among these executives," Christian says.

"The low level of planned capital investment in the coming quarter reflects this and while understandable, is concerning - as capital investment has a run-on effect that helps boost related areas of the economy.

"The dip in GDP growth we saw during the March quarter due to the flood damaged mining sector, and the fear this caused, indicates just how important the resource sector is to our overall economic performance."

Though it has been a heavy burden on exports, the strong Australian dollar is not bad for all.

The survey shows that 41 percent of executives see that a continuing strong Australian dollar will have a positive impact on their business in the quarter ahead. For 18 percent, it will be a significant impact. About 25 percent expect a high dollar to have a negative impact, while 33 percent believe it will have no impact.

D&B economic consultant Dr Duncan Ironmonger sees the economy returning to a much stronger rate of real economic growth in GDP of at least 4 percent in the new financial year.

"The disruption to growth due to the Queensland floods and cyclones is now behind us," Ironmonger says.

"The resources sector will be the main avenue for higher growth in the year ahead.

"The latest D&B survey reveals a sharp reduction in business expectations for growth in profits, employment and capital expenditure in the core sectors of manufacturing and retailing to well below their 10-year averages.

"Wholesalers are the least affected with increased expectations for growth in sales, capital investment, inventories and selling prices."

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