Business confidence at record low: CCI

Business confidence in Western Australia has dropped to a record low with almost 75 per cent of firms believing economic conditions will deteriorate further in the next year, a new survey by the Chamber of Commerce and Industry WA has found.

The March quarter survey of business expectations in WA, which canvassed more than 560 firms, found an increasing number of business are becoming concerned with the prospects for the WA economy.

This was evident in the 75 per cent of firms expecting a further weakening of economic conditions, compared to 20 per cent a year ago.

Businesses are even less confident about the national outlook, with around eight out of 10 expecting the Australian economy to deteriorate over the next 12 months.

More than half of businesses reported weaker sales and lower profitability during the quarter while the survey's index of anticipated capital expenditure was at its lowest level in over 17 years.

Despite the negative outlook, around two thirds of respondents believe the current economic conditions are favourable for their business, with some firms reporting the attraction of new workers and retention of staff is at its easiest in more than four years.

However labour shortages still remain a critical issue for business, with 20 per cent of respondents still reporting difficulties in finding suitable staff.

"The survey results highlight the seriousness of the challenge faced by business in navigating through these uncertain times." CCI chief economist John Nicolaou said

"It is important to recognise, however, that conditions will eventually improve, making it imperative that businesses critically review their operations to make savings in the short-term, and take decisions that will deliver long-term benefits."

Of most concern for WA businesses for the year ahead was global economic growth followed by wage costs, taxation levels, borrowing costs, labour shortages and workplace relations.

The announcement is below:

Ongoing uncertainty about the global financial crisis, and its impacts on the Western Australian economy, has seen business confidence in WA drop to a record low level for the second consecutive quarter, according to the latest Commonwealth Bank - CCI Survey of Business Expectations.

The March quarter survey, which canvassed the views of more than 560 firms across a range of business and industry sectors, shows that an increasing number of businesses are becoming concerned about the prospects for the WA economy.

Almost three quarters of businesses now believe that economic conditions in the State will deteriorate over the next 12 months. This compares to less than 20 per cent just one year ago.

Businesses are even less confident about the national economic outlook, with slightly more than eight out of ten respondents expecting the Australian economy to weaken over the next 12 months.

The survey found that nearly two thirds of respondents still believe that current economic conditions are positive for their business, indicating that Western Australia remains well placed to ride out the worst of the global financial crisis.

The survey is further evidence that the Western Australian economy, the engine room of the Nation, is being impacted by the global financial crisis.

Falling business confidence reflects the tougher operating conditions faced by many businesses, big and small, across all sectors of the economy.

The index of profitability and turnover fell to record lows, with more than half of all businesses reporting weaker sales and lower profitability during the quarter.

While business conditions have deteriorated, businesses still believe that operating conditions in Western Australia remain favourable, just not at the high levels experienced in recent years.

Businesses have also significantly cut investment plans as a result of the ongoing economic uncertainty, and more stringent borrowing conditions. The survey's index of anticipated capital expenditure is now at its lowest level in more than 17 years.

CCI Chief Economist John Nicolaou said "the survey results highlight the seriousness of the challenge faced by business in navigating through these uncertain times."

"It is important to recognise, however, that conditions will eventually improve, making it imperative that businesses critically review their operations to make savings in the short-term, and take decisions that will deliver long-term benefits," Mr Nicolaou said.

The softening economic conditions have also brought some much needed relief from the State's chronic labour shortages, with companies reporting their ability to attract and retain suitable workers is the easiest it's been in more than four years.

However, labour shortages still remain a critical issue for business, with 20 per cent of respondents still reporting they are having significant difficulties finding suitable staff.

Cost pressures have also eased, with wages, non-wage labour costs and input costs all continuing to fall during the quarter. Inflationary pressures have also eased. This will be welcome news for businesses which have struggled in recent years to manage in the face of significant cost pressures.

Greg Caust, General Manager Corporate Financial Services WA at the Commonwealth Bank said, "while WA businesses are being impacted by the global financial crisis, it is encouraging that a majority of local firms still believe that local economic conditions are conducive to doing business. The results confirm that WA will remain the key economic driver of the Nation.

The survey's feature question asked businesses to identify the major concerns for their business in the year ahead.

With governments and businesses across the world working hard to respond to the global financial crisis, global economic growth was identified as businesses' top priority for 2009.

The survey found more than 40 per cent of respondents consider global economic growth to be the single largest concern for 2009, while almost 60 per cent of respondents rated global economic growth in their top three concerns.

Wage costs were also identified by more than 18 per cent of respondents as the primary concern for their business in 2009, while 55 per cent of respondents rated this issue in their top three concerns.

Other issues which were identified as major concerns for WA businesses in 2009 included; taxation levels (39 per cent), borrowing costs (31 per cent), labour shortages (30 per cent), and workplace relations (24 per cent).

While it is clear that global economic growth and prosperity is central to the State's long-term prospects, the survey also highlights the importance of economic reforms that help, not hinder, business growth and investment, and job creation and protection.

Government can best assist the economy, and business, by providing meaningful tax relief, maintaining a modern and flexible industrial relations system, and greater investment in wealth creating infrastructure.