Grim Christmas ahead as business expectations slump again
Monday, 6 October 2008
James Thomson
It’s beginning to look a lot like an ugly Christmas, with the latest business expectations survey from Dun & Bradstreet revealing that business executives are bracing for a difficult end to the year.
Rising interest rates and petrol prices and the falling value of the Australian dollar have all weighed heavily on executives’ outlook for the December quarter.
A stunning 93% of respondents said petrol prices had negatively affected their business, with just under 70% blamed tight credit conditions.
The 20% fall in the value of the Australian dollar since July is also hitting businesses hard, with half of all executives indicating that the Aussie dollar’s recent slide has had a negative impact on their business. This is up from just 12% in July.
According to the survey, the December quarter is expected to bring a steep decline in sales, profits, employment growth and capital investment, with all of these in negative territory for the second consecutive quarter.
Just under 45% of firms now anticipate declining sales while 49% expect profits to slide.
But D&B chief executive Christine Christian stresses Australia’s economy is holding up reasonably well compared to the US and Europe. She is hopeful that tomorrow’s cut in official rates – which is now tipped by most economist to be 0.5% – might provide some relief for battling businesses.
“Australia’s outlook continues to be stable at a time when the economic conditions in many countries are deteriorating very rapidly. Another move by the Reserve Bank to cut interest rates should be received positively by business given its likely positive flow on effects on spending and investment.”
One bright spot for business owners was the index tracking selling price expectations, which hit its highest level in 20 years following an increase of 11% during the quarter.
But the fact that 66% of executives expect to raise selling prices in the coming quarter will not please the bankers at the Reserve Bank – they’ll be rightfully worried this is a clear sign that inflationary pressure will continue, at least in the short-term.
Rising prices will also add to demands from employees for wage rises. That already appears to be an issue for many businesses, with 22% of respondents to D&B’s survey rating wages growth as their biggest concern in the December quarter.
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