BUSINESS CONFIDENCE FALLS DESPITE LOW INTEREST RATE

Written on the 4 March 2015

BUSINESS CONFIDENCE FALLS DESPITE LOW INTEREST RATE

AUSTRALIAN businesses are less optimistic about growth prospects this year despite the low interest rate, according to a new survey.

According to Dun & Bradstreet's (D&B) Business Expectations Survey, expectations and levels of optimism have returned to 2014 levels.

After lifting in the December quarter to 73 per cent, the number of businesses positive about growth declined to 64 per cent in February.

The survey also revealed little movement in the number of businesses planning to access credit or financing to fund expansion at 18 per cent.

It follows the Reserve Bank's decision to lower the official cash rate to a record low of 2.25 per cent last month and keep it steady in March.

Businesses believe consumer demand will remain weak in the short term, with 20 per cent listing it as the biggest barrier to growth.

This was followed by other issues, including 12 per cent for online sales from competitors, 11 per cent for skilled labour, 11 per cent for operating costs and eight per cent for access to capital.

D&B Australia and New Zealand CEO Gareth Jones (pictured) says the positive trend experienced at the end of last year has diminished.

"Taking a simple net-balance view, businesses are being exposed to more negative economic news than positive, which is undermining confidence and influencing near-term expectations," Jones says.

"Despite the dips, these latest forecasts are more closely aligned with the actual performance being reported by businesses which suggests that we are seeing a cooling of expectations to more realistic levels.

"And while it appears less and less likely that 2015 will deliver a breakout in business performance, there remains a clear albeit slow upward trend in the business outlook."

Businesses uncertain of the economy's stability have also downgraded expectations for sales, profit and employment.

After steady increases during the past two quarters, D&B's Sales Expectations Index has dropped to 34.8 points for the June quarter - down from 38.7 points in the previous period.

D&B economic advisor Stephen Koukoulas says the decline in business expectations is consistent with subdued economic growth.

"The turn lower has been particularly obvious in expected sales and profitability which suggests economic growth will remain below trend during the first half," Koukoulas says.

"The previously positive readings for expected employment and levels of capital expenditure also appear to have topped out, although at this stage the quarterly falls are marginal.

"With expectations for a much-needed, sustained upswing in business investment and employment having stalled, it is likely that the RBA will need to provide further monetary policy stimulus in the near term."


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