Businesses optimistic heading into 2017

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Businesses are feeling upbeat heading into the first quarter of 2017 according to new research from Dun & Bradstreet.

The company’s latest Business Expectations Survey reveals business expectations for employment, profit, capital investment and selling prices all increased, while sales expectations remained steady with the previous quarter.

The results saw the Business Expectations Index lift from 17 points for Q4 2016 to 21 points for Q1 2017, which is the highest reading since Q4 2015.

“Business expectations will start 2017 on a positive note, with a broadly-based optimistic outlook on the economy,” says Stephen Koukoulas, economics adviser to Dun & Bradstreet.

“Expected sales of goods and services have plateaued at a high level, but expected profits, employment, capital expenditure and selling prices are all continuing to rise.”

Koukoulas says businesses are responding to several positive effects.

“[These include] record low interest rates, a still favourable global economic environment, including the recent lift in commodity prices, and ongoing momentum from exports, construction and services.”

Profit expectations posted the largest increase, lifting from 17.1 points in the previous quarter to 23.6 points for Q1 2017 – a two-year high.

“Low interest rates and contained cost pressures from low wages growth are likely to be factors feeding into this positive profit outlook,” notes Koukoulas.

However, profit expectations in the construction industry recorded a significant fall, down from 14.4 points in Q4 2016 to 6.6 points for Q1 2017.

The survey highlights the Construction industry had one of the more subdued outlooks for the first quarter of 2017.

“It was also the only industry with a lower Selling Prices Expectations Index for Q1 2017 compared to Q4 2016. In addition, Construction companies flagged lower sales expectations for the coming quarter (12.7 points, down from 20.6 points),” the survey said.

“Of all seven industries, Construction was the only one with a lower Business Expectations Index for Q1 2017 compared to Q4 2016, slipping from 9.8 points to 9.3 points.”

The survey also reveals the key issues that businesses anticipate will influence operations in the first quarter of 2017: consumer confidence was the top issue (40.8%), followed by cash flow (16.9%) and the level of the Australian dollar (11.4%).

As for potential barriers to growth in the year ahead, the top two issues were weak demand for products and services (19.1%) and online selling by competitors (14%).

The majority of businesses do not intend to seek new finance to fund growth (80.3%), compared to 13.1% that do intend to.

And with cash flow an ongoing pain point for SMEs, the survey also found that almost a third of businesses (30.6%) reported having a customer of supplier than became insolvent or was otherwise unable to pay them in the past year.

There was also a notable drop in the percentage of businesses that are more optimistic about business growth next year compared to this year: in November, 50.2% of all firms said they are more optimistic (a three-year low), down from 63.4% in October.

Overall, however, businesses sentiment is positive as the New Year approaches.

“The level of business expectations remains consistent with the economy growing at a 3% pace – perhaps a little higher,” says Koukoulas.

“The generally positive outlook for the economy is one reason why the Reserve Bank is likely to leave interest rates on hold for the next few months and then judge whether the positive news on the economy has been sustained.”

Actual results for the September 2016 quarter show profits, capital investment and selling prices all increased, while sales fell and employment remained flat.

·      The Actual Employment Index was steady with the June quarter on 4.6 points

·      Sales fell from 15.5 points to 14.8 points

·      Actual profits lifted from 7.9 points to 9.4 points

·      Capital investment increased from 7.7 points to 10.3 points

·      Actual selling prices rose from 6.6 points to 9.6 points.


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