Business confidence suffers significant drop

Submitted 8/01/2009

Migration for Business Growth

Business confidence has dropped sharply during the December quarter, reflecting the negative effects of the global financial crisis, accroding to the State's leading business organisation, Business SA.

The Commonwealth Bank Business SA Survey of Business Expectations for the December quarter showed that the South Australian confidence index decreased 14.7 points (15.1 per cent) to 82.8 points.

This decrease pushes confidence to a two-year low, and follows a 9 point confidence rise in the September quarter, following cuts to interest rates.

The slide in business confidence for the December quarter is being attributed to the impact of the global financial crisis hitting the local economy.

Business SA Chief Executive Officer, Peter Vaughan, said that survey results indicated that confidence from interest rates cuts was short lived and there were major concerns for business.

"The interest rate cuts provided some much needed relief for business, however it was not enough to stem the impact of the volatility in financial markets," said Mr Vaughan.

"General business conditions in the December quater dipped much further than anticipated and are at the lowest levels since the index was introduced in 2001.

"The cost of doing business is still a major challenge for the business community and expectations are that the current climate will get worse before it gets better.

"Interest rates have been too high for too long, and we would like to see further rate cuts in 2009 as the local economy remains under threat."

According to the respondents, the decrease in confidence in the December quarter survey is set to continue in the next quarter.

"Although we have lower petrol prices and the expectation of further cuts in interest rates, respondents are clearly concerned about the upcoming quarter."

Joe Formichella, General Manager Corporate Financial Services, South Australia and Northern Territory, Commonwealth Bank, said that he wasn't surprised that business confidence was down for the December quarter.

"These results reflect the continued volatility in equity markets and uncertainties in key economic indicators such as expected retail spend for the Christmas period and potential flow on impact on unemployment. Despite the initial confidence we saw from interest rate cuts, businesses are hesitant to grow debt in the current environment.

"Closely monitoring and managing cashflow - concentrating on both revenue generating activities as well as controlling expenses - continues to be critical for all businesses. In the existing market conditions businesses should continue to focus on core activities and be thorough when assessing opportunities to grow and aquire that will no doubt arise in the current environment," Mr Formichella said.

Mr Vaughan said there was a combination of concerns from survey respondents which were contributing to the negative outlook, including material and overhead costs remaining high.

"Businesses are not only dealing with the impact of global events but also facing high labour and material costs, which is further deteriorating business confidence this quarter," said Mr Vaughan.

With unemployment levels remaining stable in South Australia, the majority of businesses did not see a change in sourcing professional, skilled or unskilled labour.

"While confidence is struggling, more than half of respondents expect total real labour costs to remain stable in the March quarter, a reflection of loosening labour market conditions.

" We are used to seeing a decrease in unemployment during the Christmas trading period, however the economic slowdown has taken its toll and businesses are in a holding pattern in terms of increasing workforce numbers.

"The concerns do not look like easing for business with many respondents predicting pressures to remain at current levels into 2009.

The majority of respondents indicated their export sales were the same as the previous quarter, and exporters predicted much of the same in the next quarter, with nearly 65 per cent expecting export sales to remain stagnant in the first quarter of 2009.

"The continued volatility in international financial markets has businesses divided on their opinion of the value of the Australian dollar," Mr Vaughan said.

Almost half of survey participants expect a stable Australian dollar in the next quarter, while the remainder are split between a weaker and strengthening dollar.

The December quarter survey also asked businesses about their opinion in relation to investment, foreign investment and interest rate management strategies, the effect of the global financial crisis and their attraction and retention strategies.

Nearly half indicated that their investment strategies have not changed and they will continue with original expansion/acquisition plans.

The majority state that they have not reviewed foreign exchange and interest rate risk management strategies for their business.

Eighty percent indicated on increased difficulty in accessing credit for their buisness and the majority of businesses surveyed stated that they had not made any changes to their recruitment plans since October 2008. More than 65 percent indicated that the recent economic events did not change their intentions to train existing staff.