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Australian business confidence has slumped, but is it warranted?

Australian business confidence has slumped driven by declining sentiment about the performance of Australia’s economy over the next five years, with some industries experiencing a bigger decline in confidence than others. But is the concern warranted?

Keeping track of business confidence within relevant industries is important to magazine publishers in preparing budgets for the year ahead, predicting expected sales results, and developing responses to client objections when selling directly. 

In December 2019, Roy Morgan measured that Australian business confidence dropped 3.9pts (-3.6 per cent) to an eight-month low of 104.5 – based on 979 detailed interviews with a cross-section of Australian businesses from each state and territory. 

Roy Morgan found that views about the Australian economy’s performance going forward declined significantly in December, with a record low 40.3 per cent (down 4.5ppts) expecting the Australian economy to have ‘good times’ economically over 2020 while 56.7 per cent (up 5.9ppts) expect ‘bad times’ (the highest figure for over eight years since July 2011).

The market research body reported that the December 2019 business confidence level is a significant 7.7pts lower than it was a year ago, and sits 10.8pts below the long-term average of 115.3. Business confidence is also just below the latest ANZ-Roy Morgan Consumer Confidence, which was at 106.2 to begin 2020 and has now improved to 107.3.

The number of businesses that expect 2020 will be a ‘good time to invest in growing the business’ has dropped 1.3ppts to 47.7 per cent, while 39.3 per cent (up 1.4ppts) say it will be a ‘bad time to invest’. 

Business confidence by industry 

While business confidence has declined overall, Roy Morgan found that there are some industries which remain well above average (10 per cent higher than the national average): 

  • Public administration and defence 
  • Mining 
  • Wholesale 
  • Property and business services. 

However the measure dropped below 100 in the December quarter for other key industries including:

  • Information media and telecommunications,
  • Recreation and personal
  • Accommodation and food services 
  • Electricity, gas and water. 

The drop in these industries was significant enough to lower the national average.

Business confidence by region 

Business confidence was up on a year ago in only two states – Western Australia and Tasmania – which now have the highest ratings among the states. Business Confidence is also above average in New South Wales despite a slight drop.

However, there has been a drop of 10pts or more in Queensland, South Australia and Victoria compared to this time a year ago. Victoria is now below the neutral level of 100 (at 99.1 for the December quarter); Queensland and South Australia are marginally higher.

Further tests to come 

Roy Morgan CEO Michele Levine says that business confidence is set to be further tested in 2020 as Australia recovers from months of devastating bushfires amid global uncertainty on a number of fronts.

“The Federal Election result provided a five-month boost to business confidence between May and September, however that impact wore off over the past few months as concerns about the performance of the Australian economy in the mid-term increased.

“A majority of business leaders now expect ‘bad times’ for the Australian economy over the next year and over the next five years. Yet businesses remain relatively positive about their own prospects. A majority of respondents expect their business to be ‘better off’ this time next year.”

Is Australia’s economy as bad as everyone thinks? 

PwC’s 23rd annual CEO survey also shows that 80 per cent of CEOs are concerned about economic growth, but Deloitte Access Economics Partner Chris Richardson believes that the Australian economy isn’t as bad as businesses expect. 

“Australia has been battling the dual demons of drought and housing-related negatives, including cautious consumers and a downturn in housing construction. But now there’s a third threat: cratered confidence among consumers and business,” he says. 

“Our crumbling confidence has a few causes (and this summer’s bushfires don’t help), but the Reserve Bank hasn’t covered itself in glory as it communicates with the public. That has left confidence worse than the economy itself, which in turn risks becoming a self-fulfilling prophecy. 

Richardson notes that there are also positives, including cuts to taxes and interest rates, as well as a lower Australian dollar and a rebound in housing prices. 

“That leaves Australia locked into slow growth, but it doesn’t spell the disaster that the punters are fearing. We’re on course to keep muddling through the impacts of drought, housing-related weakness, and scared consumers.

Deloitte Access Economics Partner Chris Richardson

“Yet the nation’s growth won’t lift all that much from today’s decade low, and we don’t expect unemployment to drop or wages to accelerate through 2020: we’ll be comfortably treading water rather than roaring into recovery.”

Richardson admits that the retail sector is amid its deepest downturn since 1990, and the construction sector is slowing. Agriculture is also experiencing the dual challenges of drought and bushfires, which may see some farmers leave the land for good. Australia’s manufacturing industry remains dire, and while the mining sector is doing well, the LNG boom that brought huge expansion is largely over. 

But he says “Australia’s biggest mistake of the moment is to dwell on the problems. There’s plenty of sectoral success stories around too. The growth in health care is, well, very healthy, nudging record highs. It became Australia’s largest employer a decade ago, and this sector’s trajectory will see it have the nation’s largest revenues (beating out mining) within a decade from now. And growth in other sectors linked to taxpayer pockets (including education as well as the public sector itself) remains more than solid.

“Information services is also traveling well as new technologies open new paths to prosperity.”

Overall, Richardson says that two key factors mean that Australia’s economy, while slow, will continue to work as it should: “Job growth is healthy, and lower interest rates are loosening the noose on family budgets.” 

More information on Australia’s business outlook can be found here: 

Written by Lyndsie Clark

Niche Publishing Network Founder and Editor Lyndsie Clark has over 10 years of niche publishing experience, working in a variety of roles spanning B2B editorial, sales, operations, events, BD, and management.

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