2015 outlook cools as soft economy checks expectations
While this month's Federal Budget appears of little concern, weak demand and consumer confidence are weighing on Australian businesses, which have again lowered their near-term expectations.
According to Dun & Bradstreet's latest Business Expectations Survey, 49 per cent of businesses expect no impact from the Budget, while 23 per cent are unsure, 15 per cent anticipate a negative effect and 13 per cent a positive outcome. The findings suggest that businesses are expecting the Budget to be 'dull and boring', as promised by the government.
Despite this sentiment, the survey's Business Expectations Index for Q3 2015 has fallen to 14.9 points, down from 20.7 points in the previous quarter and 19.5 points at the same time last year, in a correction to the generally improving outlook measured between late 2013 and late 2014. The Business Expectations Index is an aggregate of the survey's measures of sales, profits, employment and investment expectations; which have all fallen through 2015.
Weak demand has been reported by businesses as the biggest barrier to growth this year, while consumer confidence was rated as the issue most likely to influence their operations in the third quarter of the year.
According to Steve Brown, Director at Dun & Bradstreet-Australia and New Zealand, persistently modest news on the economy this year has delivered a reality-check for many businesses.
"While general conditions in Australia remain sound, it has become clear to many businesses that 2015 will not be the year when the economy breaks out from its inertia," said Mr Brown.
"This reality has hit the outlook for business activity, which had been steadily building through to the beginning of the year along with strong levels of optimism about future growth.
"There is now a clear cooling in expectations that we expect will continue this year as business's pull back their earlier optimism," Mr Brown added.
This recent optimism is evident when comparing business expectations with growth in the economy during 2014, with the business outlook remaining buoyant while GDP growth fell away. The latest analysis by Dun & Bradstreet shows that both indicators are now in decline.
All key measures within the Business Expectations Survey have eased through 2015, with only profits expectations improving quarter-on-quarter.
Compared to the previous quarter, the Profits Expectations Index has lifted marginally from 18.1 points to 20.6 points, with 33.7 per cent of businesses expecting increased earnings during Q3 2015, while 13 per cent expect lower earnings and the majority unchanged returns. Although lower than at the beginning of this year, the earnings outlook is slightly up on the same time in 2014 (19.9 points).
The employment outlook, which had shown resilience in-line with official unemployment figures, has dropped for the time in seven quarters. The Employment Expectations Index has dropped to 13.8 points from 16.8 points in the previous quarter, although it remains marginally higher than the 12.7 points recorded at the same time last year.
With weak demand and consumer confidence reported as issues for businesses, the Sales Expectations Index has eased to 30.2 points, down from 32.7 points last quarter and 32.5 points last year. Forty per cent of businesses are forecasting higher sales during Q3, down from 46 per cent last quarter, while 10 per cent are anticipating a decline.
Similarly, expected selling prices in the third quarter have dropped quarter-on-quarter. Reflecting the drop in the official inflation rate, Dun & Bradstreet's Selling Price Index has fallen to 19.9 points, down from 23.5 points last quarter and 20.0 points last year. Twenty-nine per cent of businesses surveyed intend to lift their prices in the third quarter, while nine per cent will discount.
In signs that businesses are holding over capital spending until conditions improve, Dun & Bradstreet's Capital Investment Index has declined for a second consecutive quarter. With 19.7 per cent of businesses planning to increase their investment levels in Q3 2015, compared to 9.6 per cent that intend to cut spending, the index has fallen to 10.1 points, down on 12.6 points in the previous quarter and 12.1 points in Q3 2014.
"The softening in a range of business expectations is continuing, with firms scaling back their outlook for sales, employment, capital investment and selling prices," said Stephen Koukoulas, Economic Adviser to Dun & Bradstreet.
"Making this picture a little more problematic is that actual results for these indicators have fallen short of businesses' earlier upbeat expectations.
"There is some encouraging news for the business sector with the outlook for profits picking up from what was an already healthy level, suggesting that despite caution on the bigger picture outlook, input costs are under control.
"At this point in the year, the economy remains in generally sound shape, even though the earlier optimism from the business sector continues to be scaled back," Mr Koukoulas added.