Australia | Feb 05 2013
-Business outlook is weak
-Cash flow a major concern
-Discounting likely the norm
-Sell price index at survey low
By Eva Brocklehurst
Australian businesses are gloomy. According to the latest quarterly Dunn & Bradstreet survey, the nascent optimism present in the December quarter with regard to the March quarter outlook has petered out. In fact, 68 per cent of businesses that were surveyed this quarter are concerned that cash flow will be an issue for the June quarter. Furthermore, 28% of surveyed businesses see outstanding accounts receivable as affecting cash flow, and therefore an impediment to growth. However, only 6% are intending to seek finance or credit to grow, revealing business is as cautious as its consumer counterpart.
The D&B survey notes consumers remain careful with debt and restrained in their purchases. This mood has affected the business outlook and expectations for selling prices have been lowered. The survey found that the high Australian dollar is still supporting low prices and 29% of those businesses surveyed believe it will have the most influence on their operations. The D&B profit expectations index has fallen sharply to 11 for the June quarter, a drop of 12 points from the March quarter outlook, in the wake of declining selling price expectations. The selling price index has fallen to one, the lowest since the survey began in 1988 and 28 points below the 10-year average. According to D&B, this underlines discounting as the new norm. Expectations for sales, capital investment and inventories all decreased from the previous quarter.
D&B director of corporate affairs, Danielle Woods, says businesses anticipate a squeeze on profits. "Actual levels of capital investment and employment for the December 2012 quarter were in negative territory, suggesting businesses are themselves taking a conservative approach and looking at their core operations in response to these sales pressures," she said. The survey's employment expectations index was the only measure to register positive movement for the June 2013 quarter, edging up to two from one in the previous quarter. Capital investment expectations were down 11 points to an index of three, moving below the 10-year average for the first time since September 2011. The inventory index fell for the second consecutive quarter, to seven, from a long-term high of 24 in the December quarter 2012.
Underlining this conservative era the survey found 33% of businesses plan to take advantage of interest rate levels to pay off debt, against the 10% that will use the low rate to raise their borrowings. D&B economic advisor, Stephen Koukoulas, said the record low reading for selling prices suggests the official inflation rate could fall further during the first half of 2013. "If this shows up with the release of the March quarter inflation data in April, it will leave the Reserve Bank with scope to cut interest rates, if required," he said. However, he added that a further official rate cut seems unlikely, given an improving global economy and strength in financial markets. Nevertheless, the survey suggests the risks are high for a slowdown in sales and capital investment in the months ahead.
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