WA business confidence hits new lows

Business confidence in Western Australia has hit record lows as the global economic uncertainty starts to impact owners, two separate surveys have found.

A December quarter survey released by the Chamber of Commerce and Industry WA and the Commonwealth Bank revealed that 71 per cent of respondents believe conditions in the state economy could deteriorate next year.

The figure is in stark contrast to the survey findings released six months ago, when 70 per cent of respondents expected the WA economy to remain strong or strengthen in the year ahead.

The survey canvassed the views of 530 firms across a broad range of business and industry sectors.

Respondents were more pessimistic about the national outlook, with almost 84 per cent expecting the Australian economy to weaken in the next 12 months.

CCI chief economist John Nicolaou said while WA businesses are experiencing a period of considerable uncertainty, overall, economic conditions still remain favourable.

"Labour costs, oil prices and interest rates have eased considerably in recent months, and with labour availability improving, this has helped reduce the cost of doing business - which is welcome news for many businesses which have struggled in a high cost environment," he said.

Nearly 70 per cent of respondents indicated the current economic climate is positive for their business, with wages, non-wage labour costs and input costs falling to near record lows.

The survey also found that WA businesses are responding with a range of strategies to deal with the impacts of the global financial crisis, with more than half choosing to delay their investment decisions, while over one third of respondents had imposed job freezes.

Meanwhile, the Sensis Business Index for November showed WA had suffered the nation's biggest drop in confidence among small and medium enterprises.

The survey provides the latest snapshot of SMEs in Australia, with 1800 businesses surveyed.

Report author Christena Singh said business confidence had plummeted in WA on the back of sluggish demand and weakening economic conditions.

"Most of the eastern seaboard states have been experiencing extremely tough trading conditions during the last six to nine months and these conditions are now starting to be felt by small businesses in WA," Ms Singh said.

Business confidence in the state has fallen 29 percentage points over the last three months to 14 per cent. It is now only one quarter of the level recorded this time last year.

Ms Singh said it the fall translated into four out of 10 businesses in WA have been impacted by the economic slowdown.

"Overall, WA businesses are concerned about the economic climate, cash flow and lack of work," she said.

Demand for goods and services has deteriorated substantially in WA, with the sales indicator now at the lowest level since July 2001.

More than a third of businesses have experienced a fall in sales over the last three months and most were not expecting sales to pick up in the lead up to Christmas.

A lack of work has translated to falling profits for WA small businesses, with about four in 10 experiencing a decrease in profit during the last three months.

"Despite recent interest rate reductions, falling petrol prices and the announcement of a government stimulus package, more businesses in WA expect the economy will be worse off in the next 12 months," Ms Singh said.

The announcement from both CCIWA and Sensis are pasted below:

CCIWA

Ongoing uncertainty about global economic conditions has seen Western Australian business confidence drop to its lowest level on record, according to the latest Commonwealth Bank - CCI Survey of Business Expectations.

The December quarter survey, which canvassed the views of a record 530 firms across a broad range of business and industry sectors, found that many businesses are becoming increasingly concerned about the prospects for the economy.

Nevertheless, despite the softening in business sentiment during the quarter, economic conditions still remain favourable for a majority of WA businesses, with seven out of ten respondents saying that the current economic climate is positive for their business,
indicating that WA remains well placed to withstand any long term slowdown.

As the world adjusts to the new economic and financial environment, the most precious resource is confidence.

The survey has revealed that more than 70 per cent of respondents expect economic conditions in the State to deteriorate in 2009. To put this into context, 87 per cent of firms had a positive outlook for the local economy at the same time last year.

Businesses are even more pessimistic about the national outlook, with almost 84 per cent of respondents expecting the Australian economy to weaken in the next 12 months.

WA businesses have not been immune from the global economic uncertainty, with around 60 per cent of all respondents to the survey reporting that current economic events have adversely affected their operations.

Businesses in the mining and manufacturing industries have been hardest hit by the global downturn, with around two thirds of respondents from these industries reporting a softening in operating conditions.

Business investment has been most affected by the weaker global economic conditions, with almost two thirds of respondents reporting a negative impact on their capital expenditure plans. Sales and recruitment intentions have also been adversely affected.

CCI Chief Economist John Nicolaou said while WA businesses are experiencing a period of considerable uncertainty, overall, economic conditions in WA still remain favourable.

"Labour costs, oil prices and interest rates have eased considerably in recent months, and with labour availability improving, this has helped reduce the cost of doing business - which is welcome news for many businesses which have struggled in a high cost environment."

The survey found that wages, non-wage labour costs and input costs all fell to near record lows during the quarter. Inflationary pressures have also eased.

The ability of WA businesses to source suitable workers has also improved significantly, with labour availability rising to its highest level in three years. This is a welcome relief for many WA businesses, which have struggled to find suitable workers for many years. But labour shortages remain a critical issue for more than 40 per cent of respondents, indicating that there are still many job opportunities in the nation's leading economy.

Greg Caust, General Manager Corporate Financial Services WA at the Commonwealth Bank said: "While firms may be facing some short term uncertainty, it remains important for businesses to keep sight of their long term goals to ensure they are prepared for the inevitable upturn."

A deterioration in all four indicators of operating conditions during the quarter has also affected business sentiment, with turnover, profitability and exports dropping to their lowest level since June 2001.

WA business is responding with a range of strategies to deal with the impacts of the global financial crisis. More than half of all businesses were choosing to delay their investment decisions, while over one third of respondents had imposed job freezes.

While there is no doubt the current financial crisis is having a significant effect on global and local economies, CCI remains confident that the Western Australian economy is one of the best placed in the industrialised world to absorb most of the global economic shocks.

CCI is confident WA will remain the economic driver of the Nation. The fundamentals of the WA economy are strong, we have a growing population and near record low unemployment, business investment is robust and our banking sector is well managed.

Sensis

WA has experienced the nation's biggest drop in confidence among small and medium enterprises (SMEs), according to the Sensis® Business Index released today.

The survey provides the latest snapshot of SME (up to 199 employees) activity in Australia, interviewing 1,800 businesses between 6 - 26 November 2008.

Report author Ms Christena Singh said business confidence had plummeted in WA on the back of sluggish demand and weakening economic conditions.

"Most of the eastern seaboard states have been experiencing extremely tough trading conditions during the last six to nine months and these conditions are now starting to be felt by small businesses in WA," Ms Singh said.

Business confidence has fallen 29 percentage points over the last three months to 14 per cent. It is now only one quarter of the level recorded this time last year.

The report shows approximately four out of 10 businesses in WA have been impacted by the economic slowdown.

"Overall, WA businesses are concerned about the economic climate, cash flow and lack of work," she said.

Demand for goods and services has deteriorated substantially in WA, with the sales indicator now at the lowest level since July 2001.

More than a third of businesses have experienced a fall in sales over the last three months and most were not expecting sales to pick up in the lead up to Christmas.

A lack of work has translated to falling profits for WA small businesses, with about four in 10 experiencing a decrease in profit during the last three months.

"Similarly, the profitability Index has not been this low in WA since July 2001," she added.

The economic climate has also seen continued weak capital expenditure by WA businesses.

"While there has been an improvement on the previous quarter, approximately one quarter of businesses reduced capital expenditure during the previous three months," she commented.

In addition to weak capital investment, four in ten WA businesses impacted by the downturn have reduced or watched their costs closely.

After a prolonged period struggling to find staff, the report shows WA small businesses are now beginning to reduce staff numbers.

Over the last three months, 14 per cent of businesses reduced employment, and the majority of these did so because of weak business and economic conditions. By comparison, only 11 per cent increased the size of their workforce.

Ms Singh explained WA businesses were not optimistic about the economic climate over the next 12 months.

"Despite recent interest rate reductions, falling petrol prices and the announcement of a government stimulus package, more businesses in WA expect the economy will be worse off in the next 12 months."

Almost half of businesses believe the economy will be worse off in 12 months time, while only 13 per cent believe it will be better, with the remaining undecided.

However, she concluded that despite the substantial weakening in business conditions, the WA trading environment was tracking above the national average.

"WA has the highest expectations for sales, prices and profitability for the year ahead of any state or territory."

The report also highlights support for the WA Government has received a substantial boost following the election.

Small business support for the WA Government rose 30 percentage points, taking the indicator to eight per cent, making it the most supported government in Australia.

The main reasons for support are beliefs the WA Government is:

- Trying to help small business;

- More interested in/supportive of small business;

- Getting the economy going.