The latest Visa - VECCI Business Trends and Prospects Survey shows that the short-term economic outlook has declined at both a national and a State level.

VECCI's Chief Executive Officer, Mr Neil Coulson, says the survey of a cross-section of Victorian businesses taken in mid-June 2006 revealed that the business community's perceptions of the prospects for the national economy have softened considerably over the past three months.

"The Visa-VECCI Business Sentiment Index for the Australian economy declined significantly over the June quarter with only 19 percent of respondents anticipating that the Australian economy will experience stronger growth over the coming year. In the March quarter 2006 survey, 30 percent of respondents forecast stronger national economic activity.

"In terms of local prospects, 32 percent of those surveyed anticipate that Victoria's economic performance will be weaker during the next twelve months, an increase on the March quarter survey when 21 percent of respondents held this view. Only 15 percent of surveyed businesses believe the State economy will experience stronger growth during the next twelve months, down from the 25 percent of respondents holding this view in the March quarter survey.

"Trading conditions were certainly mixed during the June quarter 2006. While improvements in general business conditions, sales, exports, selling prices, employment and investment were reported, profitability and overtime fell, possibly influenced by higher wages and other labour costs, fuel prices increases and interest rate increases.

"Manufacturing and services jobs are under intense pressure from overseas competition, and the Queensland and Western Australia economies are now growing much more rapidly than Victoria.

"Tax relief measures in both State and Federal Budgets will begin to impact from 1 July 2006 and will hopefully have a positive counter-effect for many businesses.

"There is certainly a strong case against any move toward an interest rate increase next week on the part of the Reserve Bank, given the downturn in business confidence, the dampening effect of higher fuel prices on the economy, and the fact that last week's high inflation figures were largely driven by cost-push factors such as higher fuel prices and higher banana prices in the wake of Cyclone Larry, rather than an overheating economy", says Mr Coulson.

Summary of Results from Visa-VECCI Business Trends and Prospects Survey

• Trading conditions for Victorian businesses were mixed during the June quarter 2006. Growth in general business conditions, sales levels, exports and selling prices eased during the quarter, while profitability declined, accompanied by wage pressures. Over the next three months, general business conditions, sales, exports, wages, selling prices, profitability and employment levels are all expected to rise.
• The Visa - VECCI Business Sentiment Index for the Australian economy declined over the June quarter 2006, following three previous quarterly rises. The business community's perceptions of the prospects for the national economy over the next twelve months have softened. A total of 19 per cent of respondents anticipate that the Australian economy will experience stronger growth over this period. This figure is lower than the March quarter 2006 figure of 30 per cent and the December quarter 2005 survey, where 26 per cent of respondents held this view.
• Although a net balance of 38 per cent of surveyed Recreation, Personal and Other Services businesses believe that Australia's economic performance will strengthen over the twelve months to March 2007, a number of businesses in the Transport and Storage (33% weaker), Wholesale and Retail Trade (31% weaker) and Manufacturing (31% weaker) industries are expecting a weaker performance.
• Victoria's economic outlook also weakened in the June quarter 2006, with a total of 32 per cent of surveyed businesses anticipating that the State's economy will experience a weaker performance during the next twelve months, up from the 21 per cent of respondents holding this view in the March quarter 2006 survey and 24 per cent of respondents holding this view in the December quarter 2005 survey.
• On a net balance basis, 48 per cent of respondents from the Transport and Storage sector believe the Victorian economy will be weaker over the coming year. Other sectors that believe Victoria's economy will weaken over the forward period include Wholesale and Retail Trade (43%), Finance, Property and Business Services (40%) and Recreation, Personal and Other Services (38%).

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VECCI Strategic Communications
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email: media@vecci.org.au