8 January 2008
Tightening credit market challenges Australian business
Interest rate and petrol price concerns increase
The latest D&B National Business Expectations Survey shows...
Outlook for March quarter 2008
- Expectations for selling prices remain high, with 59 per cent of firms anticipating prices to be higher in the March quarter than a year earlier
- The outlook for capital investment is just inside positive territory
- Expectations for sales and profits growth have fallen for the first time in four quarters
- The outlook for employment growth has returned to positive territory after negative expectations for the December quarter
Interest Rates
- Twenty six per cent of executives expect interest rates to be the most important influence on their business in the quarter ahead
Tightening Credit Market
- Executive concerns regarding the credit market have increased, with 63 per cent expecting a tightening market will have a negative impact on operations
Petrol Prices
- Twenty seven per cent of executives expect fuel prices to be the most significant influence on operations in the coming quarter
- Recent movements in petrol prices have had a negative impact on 63 per cent of businesses
Actual for September quarter 2007
- Growth in sales was the highest in three and a half years
- Profits growth entered positive territory after six negative quarters
- Despite being seven points below expectations, capital investment growth was positive
- Employment growth returned to positive territory after one negative quarter
- Selling price rises were five points below expectations
Download the Jan-08 detailed survey's results.pdf (246KB)
Media Release
The New Year looks set to challenge Australian businesses, with interest rates and petrol prices the primary concerns for executives in the quarter ahead. The impact of the tightening credit market on operations is also a concern and evidence of inflationary pressure continues with more than half of executives expecting to increase selling prices in the March quarter.
According to the latest Dun & Bradstreet (D&B) Business Expectations Survey, close to two thirds (63%) of Australian business executives expect a tightening credit market to have a detrimental impact on operations, an increase of 6 per cent since the previous survey. Meanwhile inflationary pressure continues, with 59 per cent of firms expecting their selling prices to be higher in the coming quarter than the corresponding quarter in 2007. Just 6 per cent of executives expect their prices to be lower.
Executive concerns regarding interest rates remain high, with 26 per cent of businesses indicating that interest rates will be the most important influence on operations in the coming quarter. Retail executives continue to demonstrate the highest level of concern, with 38 per cent ranking interest rates as the most significant influence on operations.
Fuel price concerns have increased to their highest level in five months. Twenty seven per cent of executives now rank the cost of fuel as the most important influence on operations; this is an increase of 8 per cent since the previous survey. In addition, recent movements in petrol prices have had a negative impact on 63 per cent of businesses, a rise of five points since September.
According to Christine Christian, D&B Australasia CEO, an increase in executive concerns regarding the tightening credit market, interest rates and fuel prices is evidence that business executives are beginning to face some challenges.
"Australian businesses have been operating in a positive economic climate for an extended period of time," said Ms Christian.
"However with the prospect of higher fuel prices and further interest rate increases, the rise in executive concerns regarding key operational influences is to be expected. Businesses are also starting to feel the impact of the tightening credit market in the cost of credit and the ease with which it can be accessed.
"Executives need to ensure that operations are tightly controlled to avoid any detrimental impact from the challenges that are creeping into the business environment."
The outlook for growth in profits and sales has declined from high December quarter expectations. Thirty two per cent of executives now expect an increase in profits and 38 per cent expect an increase in sales. Despite the decline in expectations since the December quarter, sales and profits growth expectations are both up 26 points on the March quarter of 2007.
Figure 1.1: D&B Expected Sales and Profits Indexes
Expectations for capital investment have continued to soften. The overall index is now just inside positive territory however retailers and non-durables manufacturers are expecting negative growth in capital investment.
The employment indicator has returned to positive territory after one quarter in the negative. Thirteen per cent of executives now expect to have more staff in the quarter ahead than they did a year ago, while 10 per cent expect to decrease staff numbers.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, amidst the challenges expected in 2008 there are some positives for Australian businesses.
"Although executives need to prepare for higher interest rates in 2008, the banks are absorbing a large portion of the extra cost of wholesale funds from overseas. Also, the possibility of a sharp slowdown in the US economy may negate the need for the Reserve Bank to make a further increase in official interest rates in 2008," Dr Ironmonger said.
"Despite the challenges of higher rates and anticipated higher fuel prices, Australian businesses start 2008 with higher expectations for sales and profits growth than they did a year earlier; both indexes are up 26 points on the March quarter of 2007."
The D&B index for expected sales is down two points to 18, with 38% of executives expecting an increase in sales and 20% expecting a decrease. The profits index is down four points to eight, with 32% of executives expecting profits to rise and 24% expecting a fall.
Employment expectations are up five points to an index of three, with 13% of executives expecting an increase in staff and 10% expecting a reduction. Capital investment expectations are down three points to an index of one, with 10% of executives expecting an increase and 9% expecting to cut spending. Inventories expectations are up one point to an index of two.
The selling prices index is down four points to an index of 53, with 59% of firms expecting to raise prices and 6% expecting to decrease them.
For further information, or to arrange an interview, please contact:
Danielle Woods
D&B PR Manager Australia & New Zealand
(02) 8270 2926
Dr Duncan Ironmonger
D&B Economic Consultant
(03) 8344 2131
About the Survey
D&B Australasia conducts latest Business Expectations Surveys every month. Each quarter over 1,200 business owners and senior executives representing major industry sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly Sales, Profits, Employment, Capital Investment, Inventories and Selling Prices. Since its introduction in Australia in 1988, the survey has proven to be a highly reliable measure of economic performance.
Note: The index figures used in the survey represent the net percentage of survey respondents expecting higher sales, profits, etc., compared with the same quarter of the previous year. The indices are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases.
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
