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 the higher Australian dollar 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-December 2007 revealed that only 17 percent of those surveyed anticipate that Australia's economic performance will be stronger during the next twelve months, down from 26 percent in the September quarter 2007 survey. Fifteen percent of surveyed businesses believe the State economy will experience stronger growth during the next twelve months, down from 20 percent in the September quarter survey.

"Trading conditions improved during the December 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 stronger trading conditions than their regional counterparts.

However, metropolitan survey respondents were less 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.

"The further reduction in overall business confidence is a warning bell to State and Federal Governments that business needs the right economic climate to continue to invest. Attention needs to be paid to measures that encourage business investment and productivity growth, such as lower taxes and charges, cuts in red tape, a realistic industrial relations framework and improved infrastructure.

"Delays in vital capacity-building and inflation-busting projects such as the Port Phillip Bay Channel Deepening Project will only serve to further damage business confidence", 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 December quarter 2007. Survey respondents reported slight improvements in general business conditions, sales, and selling prices over the quarter. However, in the face of continuing widespread wages growth and intense market competition, only a slight overall improvement in profitability was reported.
  
  
• Weaker trading conditions are anticipated over the next three months, with general business conditions expected to decline, along with weaker growth in sales and profitability. However, moderate growth in selling prices is anticipated. Investment in plant and equipment is expected to remain stable, while investment in buildings and structures is expected to weaken.
  
  
• VECCI's Business Sentiment Index for the Australian economy weakened further over the December quarter 2007, with a decline in the proportion of respondents anticipating stronger economic growth over the next 12 months. A total of 17 per cent of survey respondents indicated that they expect stronger economic growth, down from 26 per cent in the previous quarter, but comparable to 19 per cent in the December quarter 2006. At the same time, 54 per cent of respondents expect no change in national economic conditions and 29 per cent anticipate a weakening.
  
  
• Business confidence in the short-term outlook for the Victorian economy also moderated. A total of 15 per cent of respondents in the December quarter 2007 expect stronger State economic conditions over the year ahead (down from 20 per cent in the previous quarter, but up slightly from 13 per cent in December 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. While both metropolitan and regional businesses reported a moderate increase in selling prices, only metropolitan businesses reported growth in profitability, with regional businesses reporting a decline.
  
  
• Metropolitan survey respondents were more optimistic about the outlook for both the Australian economy and the Victorian economy than their regional counterparts, consistent with sentiment indicated in the previous quarterly