Executives brace for further deterioration

The economic outlook continues to worsen as executives' expect a further deterioration in conditions and performance in the June quarter

Australia's economic outlook continues to worsen as executives' expect a further deterioration in business conditions and performance in the forthcoming June quarter.

The results of the latest Dunn & Bradstreet Business Expectations Survey, following the latest national accounts and GDP data from the ABS, provide further evidence that Australia will experience a difficult downturn as a result of the global economic and financial crisis.

The impact of the crisis is evident in executives’ expectations for the June quarter, with 57 percent of firms anticipating declining sales and 65 percent having the same expectation for profits.

Expectations for employment and capital investment are following the same downward trend, with 27 percent of firms expecting to cut back on staff and 12 percent anticipating a need to decrease capital investment.

Selling price expectations rose by 30 percent in the nine months from March quarter 2008 to December quarter 2008 and hit their highest level ever recorded in the March 2009 quarter.

Expectations have dropped back 4 percent for the June quarter, however, three in four (74 percent) firms expect that they will raise prices.

Changing credit market conditions and a falling Australian dollar continue to impact firms, with more than five in 10 (54 percent) businesses negatively impacted by the credit market and more than seven in 10 (74 percent) hurt by the falling value of the dollar.

Wholesale businesses have reported the largest swing, with 43 percent indicating a positive impact in July and 84 percent now noting the negative affect of the dollar.

Downward movements in petrol prices have shown through with a decline since September of 89 percent in the number of executives negatively affected by fuel costs. Less than 5 percent of firms now report a negative impact while 46 percent report a positive affect.

Dun & Bradstreet CEO Christine Christian believes the latest survey demonstrates that the global crisis has yet to fully impact Australian businesses and executives are expecting the domestic environment to get worse before it gets better.

"There is no doubt that we are not yet through the worst of the crisis and indeed many businesses are only just starting to feel the impact on the ground," she says.

"The deteriorating outlook is evident in expectations across a range of indices but of most concern is the significant drop in employment expectations. This is a clear sign businesses are preparing for the worst and the impact on Australian households could be significant.

"This is a demonstration that not only has the Federal Government’s stimulus package been necessary but more will be required before the end of 2009. The question is not whether the package could stop Australia sliding into recession but rather how much worse could it be without Government intervention?"

The dramatic reductions in the official cash rate since October have impacted executives’ views on the issues that will influence their operations most in the June 2009 quarter.

Fifty eight percent of executives rank interest rates as the primary influence on their business in the quarter ahead, an increase of 22 percent since December. This increases to 64 percent for retail executives.

Lower fuel prices have also had an impact on Australian firms. Only 14 percent of executives anticipate that fuel prices will have the most significant influence on their operations in the June quarter, a decrease of 19 percent since December.

Meanwhile, 14 percent of firms rank wages growth as their primary concern, a decrease of 2 percent since December.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the latest ABS National Accounts show the Australian economy has now had three quarters of below average growth, with the December quarter the first in negative territory.

"The positive message from last week’s Reserve Bank decision to leave interest rates on hold is that, although there is room for more cuts, the Bank has done enough for the moment. The dramatic cut of 400 basis points in official rates will continue to have positive effects on consumer spending and housing construction over the months ahead," he says.

"Accordingly, the Bank sees Australian growth picking up again by the end of 2009. In addition, the Government’s second stimulus package next month will boost household spending and further stimulus will follow from the subsequent boost to public infrastructure spending."

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