Floods dampen CEOs’ confidence for 2011

The recent spate of natural disasters has dampened the confidence of business chiefs, with the latest CEO Institute Business Confidence Index recording a fall from 45 to 39 over the last quarter.

 

The index, a commissioned quarterly survey of the institute’s members, including SMEs and professional firms, tracks CEOs’ business expectations and economic outlook.

 

The latest index, and the first for the year, attracted 262 responses. According to the index, the biggest drop in confidence is in the direction of the economy, which fell from 53 to 41.

 

Although the January index for employment remained on par with the October reading of 41, the figures fell across every other category. Confidence fell from 42 to 37 for investment, 38 to 35 for profit, and 48 to 45 for sales.

 

A breakdown of the states reveals NSW rose from 43 to 47 while WA recorded a massive drop from 58 to 44. Victoria suffered a minor fall from 47 to 45, as did South Australia, falling from 22 to 20.

 

Not surprisingly, Queensland recorded the biggest fall, from 45 to 19 as a result of the floods and cylone. With 75% of the state’s land area being declared a disaster zone, 47% of CEOs in Queensland cited natural disasters as being an issue for their business.

 

While natural disasters affected Queensland more than any other state, the effect was also felt in the eastern states and South Australia.

 

28% of South Australian CEOs cited natural disasters as being an issue for their business, along with 18% of Victorian CEOs and 9% of NSW CEOs.

 

After natural disasters, CEOs identified staff issues and underlying demand as hurdles for their business in the next three months.

 

This is in contrast with the issues CEOs identified as having an impact on their business in the past three months, with the exchange rate and the Federal Election among their concerns.

 

According to CEO institute spokesperson Evan Davies, the poll shows the strongest sentiment is around increased sales while they are least confident about job hires.

 

Business-specific factors such as profit and sales are relatively unchanged, while there has been a larger drop in expectation of hiring.

 

“Last survey we noted signs of pricing stress. This current index suggests respondents have acted to deal with lower margins by cutting back on expansion plans, and possibly increasing productivity by utilising the same or smaller numbers of staff,” he says.

 

Davies points out that confidence in the economy has decreased more steeply than confidence in the respondents’ own business prospects.

 

Meanwhile, the latest NAB Quarterly Business Survey reveals business confidence and conditions slumped in the December quarter, even before the onset of the Queensland floods.

 

The survey shows business confidence fell from nine index points to five while business conditions fell from three points to two.

 

Among the sectors that reported sharp declines in conditions were business services and finance, while conditions improved in property services, recreation and mining. Not surprisingly, retail was one of the weakest sectors.

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