Australian firms face tough year ahead

More than half of Australian businesses fear the next three months will be their toughest quarter yet amid fears of a steep rise in unemployment and declining sales and profits leading executives to prepare for a tumultuous year ahead.

The latest national Dun & Bradstreet Business Expectations Survey of 1,200 companies, released today, shows that 54 per cent of firms anticipate declining sales in the March 2009 quarter, while 59 per cent expect lesser profits.

Meanwhile 20 per cent of executives expect to have fewer staff in the March quarter than they did a year ago and 10 per cent of businesses expect to decrease capital investment.

D&B chief executive Christine Christian said the decline in confidence reflects the slowdown in consumer spending which has been noticed by 27 per cent of firms and the poor results experienced in the first three quarters of 2008.

Falling employment and capital investment expectations reveal the impacts of global and local economic conditions on Australian firms, she said.

"The challenges experienced by Australian firms in the second half of 2008 caused executive confidence to decline to levels not seen in the D&B survey since the 1990s," Ms Christian said.

"As a consequence of the marked slowdown in Australia's growth, the Reserve Bank cut the cash rate by a cumulative three percentage points between September and December 2008, the fastest ever loosening in monetary policy.

"Executives will be hoping that the loosening in monetary policy, government measures to address the financial crisis and the post Christmas sales will encourage spending throughout
2009. However regardless of the outcome of these measures, business activity will remain depressed in 2009."

Selling price expectations have reached the highest level ever recorded by the survey following a 30 per cent increase over the past nine months. Despite suggestions that inflation is coming under control as a result of the slowing economy, 79 per cent of executives indicate that they will raise prices in the March 2009 quarter.

Changing credit market conditions and a falling Aussie dollar continue to impact firms, with four in 10 businesses negatively impacted by the credit market and seven in 10 hurt by the dramatic fall in the value of the dollar since July.

Wholesale businesses have reported the largest swing, with 43 per cent indicating a positive impact in July and 84 per cent now indicating that the dollar is negatively affecting their operations.

Recent downward movements in petrol prices are showing through, with an 89 per cent decline in the number of executives negatively affected by fuel costs since September. Just 4 per cent of firms now report a negative impact while 26 per cent report a positive affect.

Ms Christian said the challenges of late 2008 will continue, with activity remaining depressed and corporate investment falling in 2009.

Recent reductions in the official cash rate have shown through in a 12 per cent decline in executive concerns regarding interest rates since October. However, despite the decline, this issue remains the primary concern for executives in the March quarter.

Thirty-six per cent of firms indicate that interest rates will have the greatest impact on their business; this increases to 42 per cent for wholesale executives. Thirty-three per cent of executives anticipate that fuel prices will have the most significant influence on their operations in the March quarter, a decrease of 2 per cent since last month.

Meanwhile, wages growth concerns have increased by 2 per cent, with 16 per cent of firms now rating this issue as their primary concern.

D&B economic consultant Duncan Ironmonger said the slowing of Australia's economy may have further to go in 2009.

"The D&B survey indicates that 2009 will be a challenging year for Australian firms," Dr Ironmonger said.

"However, the federal government and Reserve Bank have acted promptly to stimulate economic growth and have indicated that they will do more as necessary throughout 2009.

"Although world growth is slowing sharply, lower oil prices are helping to contain household and business costs and the lower value of the Australian dollar is encouraging exports and domestic spending.

These factors, combined with new public infrastructure projects, will provide further stimulus to GDP growth in 2009."