WA business confidence declines

Business confidence in the WA economy has fallen to a seven-year low in the wake of the global credit crisis, according the latest Commonwealth Bank-Chamber of Commerce and Industry business expectations survey.

The September quarter survey, which canvassed the views of almost 450 firms across a range of business and industry sectors, found that one third of the state's businesses expect economic conditions in WA to deteriorate in the year ahead.

"Tighter operating conditions are being felt across the economy, but are having a greater impact on those businesses outside of the mining sector, where conditions remain very positive," Chamber of Commerce and Industry WA chief economist John Nicolaou said.

Small businesses and those in the services and manufacturing sectors are the most pessimistic, according to the survey, with 43 per cent of small businesses and 39 per cent of services and manufacturing respondents expected economic conditions in WA to weaken within the next 12 months.

By contrast, about one in four large businesses and enterprises from the production sector expected the WA economy to weaken.

Commonwealth Bank's general manager corporate financial services for WA, Greg Caust, said the slump in business confidence reflects a decline in operating conditions, with turnover, trading conditions and exports all falling during in September.

He noted that the confidence of WA businesses has been dented by conditions in the broader national and international economies.

"WA businesses are clearly concerned about the knock-on effect of an economic slowdown in the eastern states, as well as falling global equities markets," Mr Caust said.

Nonetheless, businesses generally remain optimistic, with 62 per cent of respondents believing that the WA economy will remain strong or strengthen over the next 12 months.

While conditions are becoming tighter, firms also continue to benefit from a strong national economy.

More than 84 per cent of respondents indicated that the current economic conditions were good for their business, and a similar number expect these positive conditions to continue in the year ahead.

The ability of WA businesses to source suitable workers has improved somewhat during the quarter, with labour availability rising to its highest level in three years.

However, labour shortages still remained a critical issue for businesses in WA, with 60 per cent of respondents to the survey believing that labour is scarce.

The improvement has delivered some relief to WA businesses, with the survey's indices of wage costs and non-wage labour costs both falling from historically high levels in September. Input costs also declined during the quarter.

Despite this fall, the high cost of doing business in WA continues to impact upon businesses' bottom lines, with one third of respondents reporting lower profitability in September.

The survey also found that the June 3 Varanus Island gas incident on average, cost affected businesses more than $1.1 million, although there has been a large variance, with cost estimates ranging from $1,000 in smaller sized businesses, up to $50 million in large businesses.

The gas crisis primarily affected businesses' ability to source inputs to production, with nearly one third of affected businesses finding it difficult to obtain supplies.

Reduced demand and higher energy costs were also key issues faced by 28 per cent and 21 per cent of affected respondents respectively.