Poor expectations urge rate cut

The April 2012 ACCI Survey of Investor Confidence shows that most actual and expected business indicators stabilised at low levels over the March quarter, amidst concerns about international uncertainty, the strength of the Australian dollar and the underlying weakness in Australian non-mining industries.

With the exception of Expected Unemployment Rate, all indicators remained below their five year averages over the quarter.

The current indexes of Own Business Conditions, Sales and Profitability remained close to their historic low levels over the March quarter, while the reading of these expectation indexes indicates that businesses remain pessimistic about their own trading conditions and business performance over the June quarter.

While the actual indicators for National Economic Conditions and Climate for Investment remained relatively unchanged, their expectation indicators continued to edge lower over the quarter indicating businesses are expecting a further slowdown in the domestic economy which will further dampen business investment plans.

Business Taxes and Government Charges remained the largest constraint on business investment for the 15th successive quarter. Weak trading conditions and rising labour costs have caused Non-Wage Labour Costs and Wages Costs to increase to the fourth and seventh largest impediments on investment respectively over the March quarter.

Mr Greg Evans, Director of Economics and Industry Policy at ACCI commented:

"This Survey highlights that while actual business conditions have stabilised at low levels over the March quarter, it is concerning that business hiring intentions remained close to its historic low levels. Continued weaknesses in sales and profit performance, coupled with rising costs including the looming carbon tax have further dampened business forward expectations.

"There is no doubt the cumulative impact of poor demand conditions and rising costs is taking a heavy toll on business confidence. The arguments for an official rate could not be clearer and the Reserve Bank should take action tomorrow. Monetary policy is far too restrictive for the mainstream economy languishing at growth rates below 1% which is confirming signs of weaker labour market conditions."

Topics:  cash rates economy interest rates rba unemployment

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