ACCI calls for rate cuts on back of data showing lower sales and profits

Posted by Editorial on 7th October 2008

The October 2008 ACCI (Australian Chamber of Commerce and Industry) Survey of Investor Confidence shows business trading conditions have continued to deteriorate in the September quarter. Business’ own conditions and profits are at their lowest level in six years, sales have fallen to below their five year average and future expectations for these measures are down further still.

The slowing global and domestic economy has also reduced the expected rate of growth for own business employment, which is expected to grow at a significantly lower rate than at the same time last year. The expectations for national unemployment over the next twelve months have risen to the highest level since this survey began in 1998.

The survey also gauges the sensitivity of investment to potential barriers, and found that interest rates were now the fourth largest impediment to further investment. Despite the recent official interest rates cut by the Reserve Bank in September, interest rates remain at their highest levels since the early 1990s. The high level of interest rates and credit availability are impacting on investment decisions and this is expected to continue.

“The survey shows that recent global financial turmoil and slowdown in global economic outlook is posing a threat to the Australian economy. Being an internationally engaged economy, Australia is not immune from these shocks, notwithstanding the fact that both the economic fundamentals and system of financial regulation in Australia are sound,” Mr. Greg Evans, Director of Industry Policy & Economics at ACCI, noted. “Overall the survey has picked up a slowing of investment, sales and profits which has translated into lower employment expectations. Looking ahead, expectations and confidence have plummeted suggesting that business will be proceeding cautiously over the next few months. We urge further interest rate reductions by the Reserve Bank to take some pressures off business. We also recognise reductions will only gradually flow through to business due to the increased cost of funds faced by lenders.”

The RBA is expected to announce a reduction of 50 basis points to the cash rate this afternoon, bringing the official rate down to 6.5%.