Australia | Oct 01 2013
-Profits, earnings expectations improve
-Retailing also more confident
-Outlook dampens call for cash rate cut
By Eva Brocklehurst
Australian businesses are looking forward to a better Christmas. The despondency witnessed earlier in the year has ebbed away and low interest rates, a weaker Australian dollar and the passing of uncertainty over the federal election have conspired to improve the mood of businesses across the spectrum.
Profits at the end of the year are forecast to improve against the fourth quarter of 2012 and 2011 and sales and earnings are also expected to be much healthier. Dun & Bradstreet has surveyed business expectations during the September quarter and found that 28% expect to increase profits over the next three months. This compares with just 7% that are forecasting reduced profits. The responses come from across the board. Business expectations traditionally rise in the fourth quarter because of increased consumer spending but this year it is even better because the federal election has come and gone. The survey found 65% of businesses were now more optimistic about future conditions following the change in government. Optimism is closely linked to profit.
That most troubled sector of recent times, retailing, is also more confident. Of those surveyed, 25% expect to increase profits and the number rises to 31% among small business retailers. Significantly, the discounting which occurred earlier in the year does not appear to be critical to expectations for improved activity. The majority of retailers intend to keep prices level.
Across all sectors the selling price index was steady at 10.2 points, up marginally from 9.4 points in the prior quarter. The selling price buoyancy is also underpinned by recent weakness in the Australian dollar. When asked about the effect of the current level of the Australian dollar, 58% of businesses expected no impact, while 34% expected a positive impact and 8% a negative impact. Although recent sales activity has been weak, with the actual sales index falling to minus 8.3 points in the June quarter — the lowest level in four years — forward expectations have improved. Sales expectations have moved to 7.9 points, up from 4.9 points in the previous quarter, as businesses anticipate that the low level of interest rates will stimulate spending for the remainder of the year.
The issues that are expected to influence operations in the December quarter are cash flow, which 26% identified as the biggest barrier to growth, and fuel costs, flagged by 22%. The biggest areas of concern are investment and employment. Despite increasing marginally, the employment and investment indices are in negative territory for Q413, indicating that a greater number of businesses plan to reduce, rather than increase, levels of hiring and capital expenditure. Additionally, credit growth is weak. Only 8% of businesses intended to seek new finance. With other issues, 41% confirmed they had customer payment or customer insolvency problems in 2013 while 11% hold concerns about the potential impact of online fraud or scams.
D&B economic advisor, Stephen Koukoulas, said the improvement in conditions was noteworthy. The Reserve Bank has viewed the recent spike in house prices with some concern.
"The positive signs for the economy from the survey all but close the door on talk of a further interest rate cut from the RBA," Mr Koukoulas maintains. "It would not be surprising that, if these positive signals are sustained, the market will be pricing in interest rates rises in the early part of 2014 as the RBA works to normalise monetary policy."
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