The latest Visa-VECCI Business Trends and Prospects Survey shows that both the short-term national and state economic outlook have improved despite 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-March 2007 revealed that 27 percent of those surveyed anticipate that Australia's economic performance will be stronger during the next twelve months, up from 18 percent in the December quarter 2006 survey. Twenty two percent of surveyed businesses believe the State economy will experience stronger growth during the next twelve months, up from 13 percent in the September quarter survey.
"Trading conditions improved during the March quarter – while improvements in general business conditions, sales and employment were reported, with stable selling prices and exports, profitability fell, possibly influenced by higher wages and other labour costs as a result of ongoing labour shortages", says Mr Coulson.
"While the drought is still impacting on Victorian business, particularly in the regions - regional respondents reported a less optimistic twelve month outlook and a poorer economic performance in the March quarter than their metropolitan counterparts – the improved business outlook may reflect a perception that the drought will break this year.
"While business confidence has risen slightly, State economies are not overheating due to excess demand conditions – as the most recent inflation results showed, cost pressures that have pushed prices up in past quarters, such as fuel and fruit prices, have eased", says Mr Coulson.
Summary of Results from Visa-VECCI Business Trends and Prospects Survey
- Trading conditions for Victorian business were mixed during the March quarter 2007. Survey respondents reported strong improvements in general business conditions and sales levels over the quarter, while selling prices and exports remained stable. However, widespread wage growth continued and an overall decline in profitability was reported.
- Over the next three months, general business conditions are expected to improve, along with sales, selling prices and profitability. Investment in building and structures is expected to remain largely unchanged, while a modest improvement in investment in plant and equipment is anticipated.
- VECCI's Business Sentiment Index for the Australian economy improved over the March quarter 2007, with an increase in the proportion of respondents anticipating stronger economic growth over the next 12 months. A total of 27 per cent of survey respondents indicated that they expect stronger economic growth, up from 18 per cent in the previous quarterly survey, but down slightly on the corresponding period last year (30 per cent). At the same time, 54 per cent of respondents expect no change in economic conditions and 18 per cent anticipate a weakening.
- Business confidence in the outlook for the Victorian economy also improved, mirroring views on the national economic outlook. A total of 22 per cent of respondents in the March quarter 2007 expect stronger State economic conditions over the year ahead (up from 13 per cent in the previous quarter, but down from 25 per cent in March 2006). Respondents were slightly less optimistic on the outlook at the State level than the national outlook.
- Over the past quarter, regional survey respondents reported generally weaker results in key business indicators compared with metropolitan based businesses. While both reported improved general business conditions and sales, exports increased for metropolitan respondents (4 per cent net balance), but declined for those in the regions (-7 per cent). Both metropolitan and regional respondents reported overall declines in profitability over the quarter; however, the decline was much more widespread in regional areas. Regional survey respondents were also more pessimistic about the outlook for both the Australian economy and the Victorian economy than their metropolitan counterparts.
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