WA business prospects strong say 20% more in CCI survey

Business confidence in Western Australia has lifted since late 2006, according to a survey by the Chamber of Commerce and Industry WA.

The CCI-Commonwealth Bank Survey of Business Expectations for the March quarter found a 20 per cent increase in the number of firms reporting conditions to be strong, rather than favourable, compared with the previous quarter.

Over 80 per cent of firms surveyed also believed the state's economy would hold its ground or strengthen during the next year, supported by stronger operating conditions.

CCI chief economist John Nicolaou said the Reserve Bank's decision to leave interest rates unchanged, following three rate rises in 2006, may have boosted confidence about prospects for this year.

However, skills shortages remain a significant issue for most businesses, with a record 74 per cent of firms describing labour as scarce and indicating they would hire more staff in the coming quarter.

Labour constraints are putting pressure on wages, with just over half of businesses reporting higher wage costs for the quarter, although there was a slight easing in input and non-wage labour costs.

Despite cost pressures, 59 per cent of businesses left prices unchanged during the quarter, while over a third of respondents expected to increase capital expenditure in the next year.

Meanwhile, respondents expressed uncertainty about how to approach climate change issues, with 44 per cent unclear as to the most appropriate methods to reduce greenhouse gas emissions.

The majority of respondents felt a market-based measure, such as an emissions trading scheme, would be preferable, and of those monitoring their emissions, 53 per cent favoured reducing energy consumption as a means of cutting emissions.

The survey also found that 85 per cent of businesses actively investigating climate change issues were medium or large in size, with a high proportion in the production sector.

The full release is below:

WA business confidence has rebounded to near record highs this year, reversing the slump induced by interest rate rises in the second half of 2006.

The March quarter results of the Commonwealth Bank-CCI Survey of WA Business Expectations found an additional 20 per cent of participating firms assessed conditions as strong rather than favourable, compared with the previous quarter.

The results show more than 80 per cent of firms believe the WA economy will remain strong or strengthen over the next 12 months, boosted by stronger operating conditions.

The survey was undertaken in the two weeks following the Reserve Bank's decision in February to leave interest rates unchanged.

CCI chief economist John Nicolaou said the hold on rates following three increases in 2006 may have reignited confidence among businesses about the prospects for 2007.

"This is reflected in the higher number of businesses expecting to hire more staff and invest in additional capacity over the next year", Mr Nicolaou said.

In March, production utilisation in WA remained high at 83 per cent over the quarter. With capacity stretched, more than a third of respondents expected to increase capital expenditure over the next year.

However, finding suitable workers remains a critical issue for most, with a record 74 per cent of firms describing labour as scarce in the March quarter, up from 73 per cent in December 2007.

A record high for labour shortages has now been reached in 13 of the last 15 quarters.

At the same time, recruitment activity has also reached record levels. In March, around 74 per cent of firms intended to hire more staff in the coming quarter, despite a clear scarcity of labour.

The tight labour market continues to place upward pressure on wages, with 56 per cent of businesses reporting higher wage costs over the March quarter. This was offset to some extent by a reported easing in input and non-wage labour costs, although these still remain at high levels.

Importantly, cost pressures have not translated into generalised price rises at this stage, with the majority of survey respondents (59 per cent) leaving prices unchanged during the quarter. However, business capacity to absorb high costs is being tested.

Commenting on the survey, Commonwealth Bank's WA manager Wayne Zekulich said the results showed that business confidence remained exceptionally strong in the state in spite of continuing labour shortages, capacity constraints and cost pressures.

Mr Zekulich said the Commonwealth Bank was pleased to sponsor the Survey of WA Business Expectations the results of which provided a regular guide to economic conditions in WA and the business mood.

Energy efficiency the most common greenhouse response

With new environmental policy concerns facing business, the feature question in the March survey focused on climate change.

Responses were mixed, reflecting the high representation of small businesses in the survey sample. The results highlighted the continued uncertainty surrounding this issue, with some 44 per cent of respondents unclear as to which measure to reduce greenhouse gas emissions would be most appropriate.

Of those firms that responded to this question, the majority identified a market-based measure such as an emissions trading system as the most appropriate policy option.

The results also showed that of all businesses that were actively monitoring greenhouse gas emissions, the most common method employed to cut emissions was to reduce energy consumption (53 per cent).

A further 28 per cent of those who are monitoring have an emissions target in place, while 18 per cent purchase green energy.

Not surprisingly, it was mainly medium and large businesses which were actively looking into the issue of climate change (85 per cent). These businesses were most prevalent in the production sector.