Business confidence hits record low as interest rates remain on hold

Posted by James Ferre on 5th August 2008

The June quarter Commonwealth Bank – ACCI Business Expectations Survey shows a significant fall in business confidence and reported business conditions. Business confidence fell to its lowest level since the survey began in 1994 and general business conditions were at the lowest level for five years. The news comes on a day when the Reserve Bank of Australia has decided to leave the cash rate steady at 7.25%. The RBA decision was expected but, unlike previous months, their primary concern now appears to be a slowdown of the economy rather than inflationary pressure – suggesting a rate cut could be seen before the end of the year.

Among the business surveys indicators, only export sales were sound and continued to grow over the quarter despite a stronger Australian dollar.

Growth indicators such as sales, profits, employment and investment all moved down over the quarter. On a positive note, cost pressures eased moderately for business with wage and non-wage labour costs growing at a slower pace.

Mr Greg Evans, Director of Industry Policy and Economics, Australian Chamber of Commerce and Industry, commented that business could expect turbulence in the months ahead. “The next two quarters remain challenging for Australian businesses,” he said. “With regard to the inflation outlook, ACCI considers moderation in wage and non-wage growth as well as declining business confidence and profit growth reduce the possibility of a wage-price inflationary spiral, despite the headline inflation hitting a 13-year high of 4.5 percent in the year to June. Given the notable slowing in growth ACCI considers that an interest rate cut should be considered as early as possible.”

Mr Robert De Luca, Executive General Manager, Corporate Financial Services Commonwealth Bank, added that the news wasn’t all bleak. “The results recorded over the past quarter show the global liquidity crisis is clearly impacting Australian business,” he advised. “However, it is encouraging to see some buoyancy from those businesses
operating outside of the domestic market. Exporters continue to take advantage of high commodity prices and export sales maintain steady growth, underlining the significance of their contribution to the overall economy.”

“With tight operating conditions expected to continue over the coming months, it is critical for businesses to maximise efficiencies and streamline business practices to see them through these challenging times,” he concluded.