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Interest rates, petrol prices primary concerns for executives

The New Year looks set to challenge Australian businesses, with interest rates and petrol prices the primary concerns for executives

The New Year looks set to challenge Australian businesses, with interest rates and petrol prices the primary concerns for executives in the quarter ahead. The impact of the tightening credit market on operations is also a concern and evidence of inflationary pressure continues with more than half of executives expecting to increase selling prices in the March quarter.

According to the latest Dun & Bradstreet (D&B) Business Expectations Survey, close to two thirds (63 percent) of Australian business executives expect a tightening credit market to have a detrimental impact on operations, an increase of 6 percent since the previous survey.

Meanwhile, inflationary pressure continues, with 59 percent of firms expecting their selling prices to be higher in the coming quarter than the corresponding quarter in 2007. Just 6 percent of executives expect their prices to be lower.

Executive concerns regarding interest rates remain high, with 26 percent of businesses indicating that interest rates will be the most important influence on operations in the coming quarter. Retail executives continue to demonstrate the highest level of concern, with 38 percent ranking interest rates as the most significant influence on operations.

Fuel price concerns have increased to their highest level in five months. Twenty seven percent of executives now rank the cost of fuel as the most important influence on operations; this is an increase of 8 percent since the previous survey. In addition, recent movements in petrol prices have had a negative impact on 63 percent of businesses, a rise of five points since September.

According to Christine Christian, D&B Australasia CEO, an increase in executive concerns regarding the tightening credit market, interest rates and fuel prices is evidence that business executives are beginning to face some challenges.

“Australian businesses have been operating in a positive economic climate for an extended period of time,” she says.

“However, with the prospect of higher fuel prices and further interest rate increases, the rise in executive concerns regarding key operational influences is to be expected. Businesses are also starting to feel the impact of the tightening credit market in the cost of credit and the ease with which it can be accessed.

“Executives need to ensure that operations are tightly controlled to avoid any detrimental impact from the challenges that are creeping into the business environment.”

The outlook for growth in profits and sales has declined from high December quarter expectations. Thirty two percent of executives now expect an increase in profits and 38 percent expect an increase in sales.

Despite the decline in expectations since the December quarter, sales and profits growth expectations are both up 26 points on the March quarter of 2007.

Expectations for capital investment have continued to soften. The overall index is now just inside positive territory however retailers and non-durables manufacturers are expecting negative growth in capital investment.

The employment indicator has returned to positive territory after one quarter in the negative. Thirteen percent of executives now expect to have more staff in the quarter ahead than they did a year ago, while 10 percent expect to decrease staff numbers.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, amidst the challenges expected in 2008 there are some positives for Australian businesses.

“Although executives need to prepare for higher interest rates in 2008, the banks are absorbing a large portion of the extra cost of wholesale funds from overseas. Also, the possibility of a sharp slowdown in the US economy may negate the need for the Reserve Bank to make a further increase in official interest rates in 2008,” he says.

“Despite the challenges of higher rates and anticipated higher fuel prices, Australian businesses start 2008 with higher expectations for sales and profits growth than they did a year earlier; both indexes are up 26 points on the March quarter of 2007.”

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