Profit and employment expectations have hit a two-year low, according to the latest Dun & Bradstreet Business Expectations Survey, with key indices revealing figures returned to levels seen just prior to the worst of the GFC. Analysts believe the declining expectations in the last quarter signal uncertainty surrounding the start of the new financial year.
Interest rates remain the primary reason for concern among companies. Three quarters of the 1200 business owners and senior executives surveyed said they would avoid accessing credit in the coming quarter as they wait for the Reserve Bank’s decision on interest rates. Anticipated rate rises on the back of the booming mining industry are likely to place further pressure on the manufacturing and retail industries.
“The latest D&B survey reveals a sharp reduction in business expectations for growth in profits, employment and capital expenditure in the core sectors of manufacturing and retailing to well below their 10-year averages,” Dun & Bradstreet Economic Consultant Dr Duncan Ironmonger said.
“Wholesalers are the least affected with increased expectations for growth in sales, capital investment, inventories and selling prices,” he added
Sales expectations have dropped to their lowest level in two years, dropping four points to a net index of 10. Expectations are particularly weak for the retail industry as it struggles to entice consumer spending despite sustained discounting. This decline in sales expectations has had a flow on effect to the outlook to profits, with the profits index falling into the negative for the first time in two years.
Dun & Bradstreet CEO Christine Christian explains the data shows a link between a persistent deleveraging trend and increasing caution.
“We are unlikely to see an improvement in the service and manufacturing sectors in the near future and this is breeding a culture of caution,” she said.
While the service and manufacturing industries are not likely to improve in the short term, the mining industry is expected to bounce back well from flood-induced damage.
“The dip in GDP growth we saw during the March quarter due to the flood damaged mining sector, and the fear this caused, indicates just how important the resource sector is to our overall economic performance,” Christian added.