Australian business sector uncertain going into 2011

Oz business uncertain for 2011

Australian business expectations for 2011 are patchy with the strong Australian dollar, increasing interest rates and the European debt crisis causing uncertainty, according to a new report.

The first major national business survey of 2011 from the Australian Chamber of Commerce and Industry says that while there are early signs of improvement in actual and expected business trading conditions, businesses remain uncertain.

This survey gauges the sensitivity of investment to potential barriers and finds that for the first time since the survey began in 1998, wage costs have become the single most important constraint on business investment, displacing business taxes and government charges.

While expectations indicators for Own Business Conditions and Sales and Profitability improved in the fourth quarter of 2010, these indexes remain below the peaks recorded during the same time last year, indicating businesses remain guarded about their trading conditions in 2011.

The expectations indicators for National Economic Conditions and Climate for Investment over the next three months declined, albeit remain marginally positive, while forward projections of GDP Growth and Business Investment for the next twelve months fell further into negative territory, suggesting that businesses are not confident the Australian economy is in full recovery.

Financial constraints on business remain significant with Charges by Lending Institutions in the sixth position on the list of barriers to investment, Insufficient Retained Earnings rising from the ninth to the seventh position, and Level of Interest Rates rising from the tenth to the eighth position. The problem of skills shortages has also become increasingly prominent, with Availability of Suitably Qualified Employees rising from the fifth position to the fourth position over the quarter.

‘Overall the survey highlights that general business conditions and sentiment slowly improved over the December quarter, with actual business indicators recovering to the levels recorded 12 months earlier. Nonetheless, most business expectations indicators remained below their recent peaks recorded in the December quarter of 2009, indicating businesses are only cautiously optimistic about their own businesses circumstances and the health of the Australian economy in 2011,’ said ACCI’s chief executive Peter Anderson.

‘Rising labour and finance costs continued to squeeze business margins and constrain the ability of businesses to employ, invest and expand their businesses. Based on this data, there remains a strong case for the Reserve Bank to remain on the sidelines in the beginning of the New Year until the general business outlook becomes clearer and the rebalancing of growth from public to private demand materialises as expected. Unfunded wage increases during 2011 will simply compress margins closer to breaking point, and dampen investment,’ he added.

Tagged as: 2011, Australia, business, uncertainty