Surveys confirm marked slowdown is under way

By: Graham Gardiner

Several business surveys released over the past week have confirmed what everyone already knew – a significant economic slowdown is

Several business surveys released over the past week have confirmed what everyone already knew – a significant economic slowdown is under way.

The latest Commonwealth Bank–ACCI Business Expectations Survey has revealed deteriorating business conditions negatively impacted on confidence in September quarter.

Expected economic performance and general business conditions indicators fell to their lowest level since the survey began in 1994, while growth indicators such as sales revenue, profits, employment and investment also declined during the quarter.

The survey shows businesses are also expecting unemployment to increase over the next three months.

Despite weaker growth, the indexes for wage growth and non-wage labour costs indicate cost pressures remain a problem for business.

However, the experts are trying to remain positive as selling prices continue to moderate and export sales still expand, albeit only marginally.

"There is no doubt Australian businesses of all sizes are facing the challenges brought about by tighter operating conditions," says Commonwealth Bank Corporate Financial Services Executive General Manager Robert De Luca.

"It is important to note that although confidence has been muted, declines in actual activity such as hiring and capex have not been so severe."

According to Australian Chamber of Commerce and Industry Director of Industry Policy and Economics Greg Evans, this will be buoyed by a moderation of inflation and a further interest rate cut brought about by the recorded weakening in demand.

De Luca says a lower interest rate environment should help to stimulate demand over the coming months and the focus for businesses now should be on "sound cashflow management".

Manufacturers, meanwhile, are being urged to develop global supply chains to counteract a "crisis of confidence" in the economy dragging manufacturing activity to record lows.

The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index fell solidly in October to 40.4. The drop of 6.8 points is the lowest recorded level of the series since it commenced in 1992.

New order figures also hit historic lows in October according to the monthly survey.

Ai Group Chief Executive Heather Ridout says it’s clear the volatility in global financial markets is hitting Australian manufacturing hard.

She says slower economic growth both domestically and overseas is eroding manufacturers’ confidence in the economic outlook.

"The slump in new orders suggests that there is a crisis of confidence arising from a crisis of uncertainty," she says.

"Until this is resolved we won’t be able to ascertain if the downturn in new orders is real or a symptom of extreme caution."

PricewaterhouseCoopers Global Leader of Industrial Manufacturing Graeme Billings says the short-term outlook for manufacturing remains bleak.

"Profitability will remain under pressure over coming quarters as sales and production volumes decline and costs, though now showing signs of easing growth, continue to rise," he says.

Billings says manufacturers must develop export markets to tap international supply chains and offset any downturn domestically or in existing foreign markets.

"In this climate, business needs to continue to reassess operations to maximise cost savings and tailor their near-term business plans effectively," he says.

"This can be achieved through an ongoing focus on broadening of market including export markets and product scope, continued development of global supply chains and improvement of skills bases.

"Innovation as well as and including business simplification in these times will prove critical for the long term viability of the Australian manufacturing industry."

Manufacturing activity and production declined in October for the fifth successive month, while employment fell for the eighth month. Manufacturing activity fell in all states.

But in more positive news input and wages costs growth eased significantly, while selling price growth also eased solidly.

Inventories and supplier deliveries fell markedly, while exports also declined.

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