6 May 2008
By Christine Christian, CEO - Dun & Bradstreet Australia
This article appeared in The Age on May 6, 2008.
Current economic data and news headlines provide a somewhat bleak fiscal outlook: inflation figures dash hopes of a rate cut, petrol prices hit $1.50 a litre, grocery bills on the increase and US heads towards recession are just some headlines we are confronted with everyday.
Particularly at a global level, with economic heavyweights such as the US and UK being hit hard by the sub-prime lending crisis, the outlook appears grim. The picture for Australia has been somewhat rosier but now there are indications that the outlook is starting to turn and that businesses are set to face a significantly more challenging environment than we saw just 12 months ago.
The latest Dun & Bradstreet (D&B) Business Expectations Survey is indicating that the September quarter will bring a rapid slowdown in activity as global turbulence and domestic inflationary pressures buffet Australian businesses. Expectations for sales, profits, employment growth and capital investment have all declined steeply to enter negative territory.
Although the RBA left interest rates unchanged at its April meeting and is expected to repeat this action when it meets this week, businesses are feeling the impact of recent rate rises. Almost four in ten executives have noticed a change in consumer spending, experiencing either a moderate or significant slowdown in the past month, and more than half are anticipating that interest rates will have the most significant impact on business operations in the September quarter.
Adding to the pressure, the impact of the sub-prime fall-out has well and truly hit Australian shores and is evident in both the cost of credit and the difficulty associated with accessing it. This situation has fuelled concerns with close to six in ten executives expecting a tightening of credit will have a negative impact on operations.
D&B's March quarter trade payments data adds another layer of gloom with the average payment period across all industries having risen to a level which exceeds three weeks past due (55.8 days). The last time payment figures were this high was back in 2001, a year in which businesses suffered a severe economic downturn as companies found themselves victims of over indebtedness.
The correlations between the downturn of 2001 and current economic conditions are evident in indicators such as increasing default rates. D&B data reveals a twelve per cent jump in the number of debts referred for collection between January and December 2007 and a twenty-three per cent jump in low value debts referred over the same period. Meanwhile data from 2001 suggests that defaults jumped 30% just before the bubble burst.
Despite these commonalities there are also some differences. The most obvious is the issue which initiated the downturn however the other critical difference is that developing nations will support continued world growth during this challenging time and in particular, China will play a key role in keeping the Australian economy buoyant. D&B is forecasting that global GDP growth will reach 3.0% in 2008 - in 2001 it was at 2.0%.
But what does all of this mean for the economy and for Australian businesses as we head towards the back-half of the year?
In a nutshell, it means that challenging times are ahead.
Businesses often find themselves caught in a cycle whereby each individual challenge only acts to heighten the impacts of others and it is this spiral that can cause a significant amount of pain. It could lead to an increase in bad debts, a further a blow out in debtor days and a resulting slow down in the cash cycle at a time when credit is no longer an easy option to cover shortfalls. It could also be the trigger that pushes a business into negative financial territory.
This does not mean we are about to see a dramatic increase in business failures, it is however a pertinent reminder that businesses cannot afford to take their eye off the ball. The cycle often turns quickly and executives cannot afford to be caught off guard.
So as we wait with all eyes pointed towards next weeks Federal Budget one thing is clear, Australian businesses are looking to the Government to set the course that will steer Australia through the challenges that await.
For further information, please contact:
Danielle Woods
D&B PR Manager
02 8270 2926
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.
