The latest Visa - VECCI Business Trends and Prospects Survey shows that both the short-term national and state economic outlook have softened in the face of the drought and increased interest rates.
VECCI's Chief Executive Officer, Mr Neil Coulson, says the survey of a cross-section of Victorian businesses taken in mid-December 2006 revealed that 18 percent of those surveyed anticipate that Australia's economic performance will be stronger during the next twelve months, down from 22 percent in the September quarter survey. Only 13 percent of surveyed businesses believe the State economy will experience stronger growth during the next twelve months, down from 15 percent in the September quarter survey.
"Trading conditions were mixed during the December quarter 2006 – while improvements in general business conditions, sales, exports and employment were reported, profitability and building and structures investment fell, possibly influenced by higher wages and other labour costs and the impact of previous interest rate rises", says Mr Coulson.
"The survey also shows that most Victorian businesses have been affected in some way by the drought. Data from the survey released last week indicates that 59 per cent of respondents reported that the current drought has had an impact on their business, comprising 40 per cent reporting a minor impact and 19 per cent reporting a major impact.
"Taken together, these results indicate a strong case against an interest rate increase this week on the part of the Reserve Bank, given the fragility in business confidence, and the dampening effect of the drought, bushfires and the impact of previous interest rate rises on the economy.
"Most State economies are not overheating due to excess demand conditions – as last week's inflation results showed, cost pressures that have pushed prices up in past quarters, such as fuel and fruit prices, are now beginning to ease", says Mr Coulson.
Summary of Results from Visa-VECCI Business Trends and Prospects Survey
- Trading conditions for Victorian business were mixed during the December quarter 2006. General business conditions and sales levels improved during the quarter, while selling prices remained stable amid strong competition and price discounting in some sectors of the economy. Wage growth was widespread during the quarter, following the increase in the minimum wage and continuing upward pressure on the wages of skilled employees. This affected profitability, which declined over the quarter.
- Over the next three months, general business conditions are expected to remain unchanged. Sales, selling prices and exports are all expected to rise, along with wages and other labour costs. Profitability is expected to increase marginally over the March quarter 2007.
- VECCI's Business Sentiment Index for the Australian economy deteriorated slightly over the December quarter 2006, with an increasing proportion of survey respondents expecting weaker economic conditions over the next 12 months. A total of 32 per cent of respondents anticipate that the Australian economy will experience weaker growth over this period, an increase on the previous quarterly result (27 per cent in September 2006), and the first quarterly survey of 2006 (15 per cent in March 2006).
- Business confidence in the outlook for the Victorian economy also deteriorated slightly in the December quarter 2006, with a total of 39 per cent of surveyed businesses anticipating that the State's economic performance will be weaker over the next twelve months. This is up from 32 per cent in the September quarter 2006.
- Over the past quarter, regional survey respondents reported generally weaker results in key business indicators than metropolitan based businesses. While general business conditions improved, the result for metropolitan respondents was stronger, while declines in profitability were more widespread among regional businesses. Regional survey respondents were also more pessimistic about the outlook for both the Australian economy and the Victorian economy than their metropolitan counterparts.
- The impact of the drought appears to be widespread, with 59 per cent of surveyed businesses indicating that the drought has had an impact on their business, comprising 19 per cent reporting a major impact and 40 per cent reporting a minor impact. The affect of the drought was both more widespread and more severe for regional respondents, with 34 per cent reporting a 'major impact' compared with 10 per cent of metropolitan based respondents. Among those affected, business revenue was the major aspect of their business to be impacted, with this mostly apparent through reduced demand from drought-affected customers, and delayed payment from customers.
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