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Australia Risk Climate: Business Concerned about Impact of Federal Budget

Business expectations for the start of the new financial year are mixed across industries, with the outlook from manufacturers and wholesalers continuing recent positive gains, while retailers in particular anticipate a sharp drop in profitability on the back of falling consumer confidence.

In addition to the segmented outlook, Dun & Bradstreet’s Business Expectations Survey for Q3 2014 has found that 59 per cent of businesses are concerned about the impact of the Federal Budget on their operations.Australia D&B Business Exp 2014 Q3Despite the concern, and speculation the Australian currency is heading for parity with the US dollar, the manufacturing sector has raised its outlook for profits and sales to 10-year highs. D&B’s survey has found that forty-six per cent of manufacturers anticipate higher profits in the third quarter while 15 per cent expect reduced earnings. Additionally, 57 per cent expect increased sales, while nine per cent forecast weaker trade.

Wholesalers are equally upbeat about business, with 43 per cent expecting a lift in their earnings in the next quarter compared to 18 per cent forecasting a fall. In addition, 56 per cent anticipate they will see stronger sales, compared to seven per cent which expect reduced activity.

The positive responses from manufacturers and wholesalers, however, have been offset by softer expectations from other industries.

While the all-industries sales expectations index is flat, at 33.4, the profits expectations index has eased for a second consecutive quarter following a reassessment of earnings from the transportation, communications & utilities; finance, insurance & real estate; services; and retail sectors.

Retailers have significantly pulled back their expectations, with the sector’s profits index dropping into negative territory for the first time since mid-2012. Compared to the 21 per cent forecasting a lift in earnings, 25 per cent of retailers are expecting a fall, which has taken the retail profits index to -4.0 points for Q3 2014, down from 7.7 points last quarter and 2.0 points in 2013.

GJones_ProfilePic_2012“The fall in expected earnings for retailers is reflective of the mood among consumers, which has dropped significantly following the release of the budget,” said Gareth Jones, CEO of Dun & Bradstreet–Australia and New Zealand.

“Combined with soft wages growth, and signs from D&B’s Consumer Financial Stress Index that individuals are finding conditions more difficult, it’s unsurprising that many businesses expect to see spending levels fall away.

“Despite the slide in expected profits, the general outlook compared to last year is healthy, with the consolidation of hiring intentions, in particular, indicating there is optimism about the overall direction of the economy,” Mr Jones added.

In addition to 62 per cent of respondents indicating confidence about growth this year, compared to 2013, D&B’s survey reveals that business expectations have remained higher than last year despite marginal quarter-on-quarter declines in the sales, profits and selling prices indices.

Encouragingly, following the better-than-expected 5.8 per cent unemployment rate released by the ABS last month, hiring expectations have lifted for a fourth consecutive quarter. Twenty-one per cent of businesses planning to add workers during Q3 2014, compared to the nine per cent intending to cut staff. This has taken the employment index to 11.6 points, up from 9.2 points last quarter and
-3.3 points last year.

To read the full report click on this link: DB Business Expectations Survey – Q3 2014 – Mixed outlook for new financial year

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