19/03/2008 - 22:00

Rates rises start to bite

19/03/2008 - 22:00

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A two-speed economy may be starting to emerge in Western Australia.

A two-speed economy may be starting to emerge in Western Australia.

The latest quarterly Commonwealth Bank-CCIWA Survey of Business Expectations shows a clear distinction between the resources-focused sector and those in more consumer-related areas.

The emergence of the split in the economy comes as overall confidence dived from record highs at Christmas to a five-year low.

The rapid drop in confidence was reflected in another recent survey by business network, The Executive Connection, which nationally recorded the sharpest change in confidence in five years On every key measure in the Commonwealth Bank- CCIWA survey, businesses in the “other production” sector, which includes mining and construction, were more optimistic than their peers in distribution, services and manufacturing sectors which tend to be more focused on the general economy.

“The mining and construction industries are certainly much more optimistic,” CCIWA chief economist John Nicolaou said.

“Those that are feeding off very strong economic factors internationally, like China, have high levels of optimism.” In terms of actual survey results, 32.6 per cent of respondents from other production expected the WA economy to strengthen, compared with 27.2 per cent for distribution, 24.2 per cent for services, and 22 per cent for manufacturing.

And 51.6 per cent of respondents from the other production sector described general economic conditions as “good”, compared with 37.4 per cent for manufacturing, 35.7 per cent for distribution, and 32.3 per cent for services.

The same split could be seen with regard to trading conditions and profitability.

The news comes at a time of heightened economic tension across the globe as the impact of US sub-prime mortgage scandal continues to flow through other economies.

In Australia, the two-speed economy which emerged with the mining boom has been exacerbated by the less resources-focused states’ reliance on a housing-led recovery at a time of increasing interest rates.

But the interest rate rises, forced in part by the strength of WA’s exporters, have started to take effect here as well, hitting the property market and consumer demand.

While the state’s insulation remains in part due to the strength of the export sector, business with a consumer focus is feeling the pinch.

The survey of almost 400 firms from across a wide range of industry sectors was undertaken in February, two weeks after the Reserve Bank’s decision to raise interest rates by 25 basis points for a second time.

It found global business confidence in the local economy has slipped since Christmas from record high levels to its lowest point for five years – though on balance respondents remained positive overall.

The TEC survey found WA chief executives the most confident in terms of revenue growth, but the most pessimistic with regard to profit growth.

WA chief executives had the most extreme issues in terms of staffing,

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