BUSINESS CONFIDENCE GROWS

Written on the 7 January 2014

BUSINESS CONFIDENCE GROWS

HIGH New Year business expectations could put pressure on Australia's low interest rates as confident traders consider raising prices in the new year, says Dun & Bradstreet economic advisor Stephen Koukoulas.

The latest Dun & Bradstreet Business Expectations Survey shows two out of three Australian business owners (68 per cent) are more optimistic about growth this year compared to 2013 and as a result, first quarter expectations for sales, profits, selling prices, investment and employment to their highest levels in 12 months.

D&B's sales index has jumped to 27.5 points, its highest point in 12 months, while the profits index has reached 25 points, its highest level since the first quarter of 2011.

This confidence could have potential to influence inflation, as 24 per cent of businesses are planning to raise the prices of their products and services during the first quarter of the year.

"If there is one cloud on the horizon, it is the expected lift in selling prices. A stronger economy is no doubt allowing firms to move their prices higher, but we are also seeing the impact on inflation from the recent weakness of the Australian dollar," says Koukoulas.

"This is likely to cause the Reserve Bank some concern, and is a fundamental factor why we are likely to see a series of interest rate rises during 2014."

A significant number of businesses are also expected to access new finance during Q1, with 18 per cent of respondents signaling their intention to go down this path - the survey's highest response since Q4 2011.

Capital investment and employment intentions have recovered from negative territory during the previous quarter and moved above 10-year averages.

The boost in finance plans has translated into a similar boost in capital expenditure expectations; 13 per cent of businesses indicated plans to increase capital expenditure, compared to the five per cent who will decrease.

Hiring plans have also strengthened, with 15 per cent of businesses intending to take on more staff while seven per cent plan to reduce their employment levels. The response has taken D&B's employment index to a three-year high of 8.8 points.

Danielle Woods, director of corporate affairs at Dun & Bradstreet, says the figures support the theory the economy is finding its feet.

"With companies looking ahead with optimism, forecasting strong sales and profits, and most recently showing a willingness and capacity to borrow money to grow their operations, the signs are positive for the New Year," she says.

"In particular, the increases in hiring and capital investment intentions indicate that businesses are preparing for a year of stronger growth and business activity.


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