Visa-VECCI survey: business confidence flags as drought lingers and interest rates bite

The latest Visa-VECCI Business Trends and Prospects Survey shows that both the short-term national and state economic outlook have declined slightly as the drought lingers on and interest rates bite.

VECCI�s Chief Executive Officer, Mr Wayne Kayler-Thomson, says the survey of a cross-section of Victorian businesses taken in mid-September 2007 revealed that 26 percent of those surveyed anticipate that Australia�s economic performance will be stronger during the next twelve months, down from 32 percent in the June quarter 2007 survey. Twenty one percent of surveyed businesses believe the State economy will experience stronger growth during the next twelve months, down from 28 percent in the June quarter survey.

"Trading conditions improved during the September quarter, with improvements in general business conditions, sales, exports and employment, as well as a small increase in profitability", says Mr Kayler-Thomson.

With the effects of the drought continuing over Spring and the Australian dollar at record levels, metropolitan survey respondents generally reported slightly stronger trading conditions than their regional counterparts. While both reported improved general business conditions and sales, growth was more widespread among metropolitan businesses. Both metropolitan and regional businesses reported a moderate increase in selling prices and profitability.

Metropolitan survey respondents were slightly more optimistic about the outlook for both the Australian economy and the Victorian economy than their regional counterparts, reversing the sentiment indicated in the previous quarterly survey, when regional respondents were more optimistic on the back of winter rains.

"The challenge for State and Federal Governments will be to boost flagging confidence through sound economic management, reductions in business costs and funding contributions to infrastructure projects such as the Channel Deepening Project, which merits a contribution of $200 million per government � because the drought is hitting hardest in south-eastern Australia, Victoria should not be forgotten about by the major parties during the current Federal Election campaign in terms of infrastructure commitments such as road, ports and water funding", says Mr Kayler-Thomson.

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

� Trading conditions for Victorian business were generally positive during the September quarter 2007. Survey respondents reported slight improvements in general business conditions, sales and exports over the quarter, and a moderate improvement in selling prices. In the face of continuing widespread wages growth and intense market competition, only a slight overall improvement in profitability was reported.

� Stronger trading conditions are anticipated over the next three months, with general business conditions expected to improve slightly, along with solid growth in sales, selling prices and profitability. Investment in plant and equipment is expected to remain stable, with a small increase anticipated in investment in buildings and structures.

� VECCI�s Business Sentiment Index for the Australian economy weakened slightly over the September quarter 2007, with a decline in the proportion of respondents anticipating stronger economic growth over the next 12 months. A total of 26 per cent of survey respondents indicated that they expect stronger economic growth, down from 32 per cent in the previous quarterly survey, but higher than the 22 per cent in the September quarter 2006. At the same time, 55 per cent of respondents expect no change in national economic conditions and 19 per cent anticipate a weakening.

� Business confidence in the outlook for the Victorian economy also moderated. A total of 21 per cent of respondents in the September quarter 2007 expect stronger State economic conditions over the year ahead (down from 28 per cent in the previous quarter, but up from 15 per cent in September 2006).

� Over the past quarter, metropolitan survey respondents generally reported slightly stronger trading conditions than their regional counterparts. While both reported improved general business conditions and sales, growth was more widespread among metropolitan businesses. Both metropolitan and regional businesses reported a moderate increase in selling prices and profitability.

� Metropolitan survey respondents were slightly more optimistic about the outlook for both the Australian economy and the Victorian economy than their regional counterparts, reversing the sentiment indicated in the previous quarterly survey, when regional respondents were more optimistic