23/06/2008 - 09:13

WA business confidence drops to 5yr low

23/06/2008 - 09:13

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Business confidence in the WA economy has declined for the second successive quarter, dropping to its lowest level in five years.

Business confidence in the WA economy has declined for the second successive quarter, dropping to its lowest level in five years.

The findings are contained in the latest Commonwealth Bank-CCI Survey of Business Expectations.

The June quarter survey, which canvassed the views of almost 450 firms operating across a wide range of business and industry sectors, indicates higher interest rates, wage pressures and labour shortages are impacting business bottom lines.

The drop in confidence reflects a worsening in all four indicators of business operating conditions during the quarter.

Profitability was the hardest hit, slumping to a near seven year low. Around one third of respondents to the survey reported that their business was less profitable this quarter.

Businesses' bottom lines have been eroded by rising costs, with both input costs and non-wage labour costs soaring to record high levels during the June quarter. Wage costs also continue to weigh heavily on profits, remaining at historically high levels.

CCI Chief Economist John Nicolaou said that the state's acute labour shortages and rising interest rates were significantly adding to the cost of doing business.

"The ongoing struggle to find suitable workers and rising interest rates are not only adding to the cost of doing business today, but also impacting on the expansion plans of many businesses," Mr Nicolaou said.

This was reinforced by the survey's index gauging anticipated capital expenditure, which fell to its lowest level in five years in June, with the largest falls in relation to small businesses.

Labour shortages continue to plague the majority of businesses, with almost three quarters of firms describing labour as scarce in the June quarter.

While businesses have continued to absorb rising costs, price pressures look set to pick up in the near term. Around 43 per cent of firms intend to raise their prices in the September quarter of 2008.

Commenting on the results, Commonwealth Bank's General Manager Corporate Financial Services, Western Australia, Wayne Zekulich, noted that the capacity of WA businesses to absorb rising prices appears to be coming to an end.

"With profitability weakening this quarter, businesses may be forced to pass rising costs on to consumers and concentrate on profitable growth, rather than volume growth," Mr Zekulich said.

Although business sentiment has weakened during the quarter, firms generally remain optimistic. Nearly three quarters (73 per cent) of respondents believe that the WA economy will remain strong or strengthen over the next 12 months.

Firms also continue to enjoy strong economic conditions, with almost 86 per cent of respondents indicating that current economic conditions are good for their business, and a similar proportion expect these positive conditions to continue over the next 12 months.

The June quarter feature question asked businesses about their key concerns with local government regulations, and the affect that these are having on business.

Overall, local government regulations appeared to be having a negative impact on around one fifth of businesses, with an even greater share (30 per cent) believing that this impact has escalated over the past five years.

Businesses' key concerns with local government regulations related to the number of regulations they must adhere to, as well as the costs associated with compliance. More than half of all respondents to this question were highly concerned about these issues, with small businesses particularly concerned.

When asked to rate the most difficult types of local government regulations to comply with, over 43 per cent of businesses from all sizes and sectors highlighted planning regulations. Environment regulations were the next most difficult to comply with, particularly for businesses in the manufacturing and production sectors.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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