Businesses upbeat heading into 2017

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In good news for the business sector, companies are anticipating an upbeat start to 2017 according to the latest Dun & Bradstreet Business Expectations Survey.

The survey reveals positive expectations for employment, profit, capital investment and selling prices in the March 2017 quarter.

Profit expectations posted the biggest improvement – from 17.1 points in final quarter of 2016 to 28.7 points for the first quarter of 2017 (a six-year high).

Capital investment expectations jumped from 7.9 points in the previous quarter to 16 points (a six-year high); selling prices surged from 9.3 points to 17.8 points and employment expectations lifted from 13 points to 18.9 points (a 17-year high).

The sales index remained largely flat, slightly up from 30.1 points to 31 points.

Stephen Koukoulas, economics adviser to Dun & Bradstreet, says the results bode well for the economy in the new year.

“The economy is ending 2016 and moving into 2017 on a positive note,” he says. “Business expectations for future sales remain upbeat and this has flowed through to a particularly buoyant outlook for profits. If these expectations are met in coming quarters, it is likely that the economy will be growing at a 3 to 3.5% pace, which would represent one of the strongest growth phases for Australia since the global financial crisis.”

In further positive news, the overall business Expectations Index, which is the average of the survey’s measures of sales, profits, employment and capital investment, increased from 17 points for Q4 2016 to 23.7 points for the March quarter – the highest level in two years.

“The favourable business outlook is also evident with expectations for employment and capital investment hitting multi-year highs. It would appear that the low interest rate environment, the competitive level of the Australian dollar and steady global growth outlook has fed into this optimistic outlook,” says Koukoulas.

“Both employment and non-mining investment have been soft spots for the economy. If the upswing in business expectations translates to stronger growth in jobs and investment, the odds favouring further interest rate cuts from the RBA will quickly recede.”

Businesses are also feeling buoyant about business growth in 2017, with 63.4% of all firms surveyed more optimistic about growing their business next year compared to 2016. Almost a quarter (24.8%) were less optimistic and 11.9% unsure.

Dun & Bradstreet reveals manufacturers were the most upbeat, with 78.7% saying they were more optimistic, compared to 16.4% who were less optimistic. This compares to just 52.5% of firms in the Finance, Insurance and Real Estate industry that feel optimistic about business growth in 2017 compared to 2016, compared to 39% who were not. Similarly, in the Construction industry, 49.2% are more optimistic compared to 35.6% who are less optimistic.

Actual results for the September 2016 quarter reveal improved activity across all key sub-indexes: actual employment (up from 4.6 points in the previous quarter to 7.4 points), sales (up from 15.5 points to 17.5 points), actual profits (up from 7.9 points to 10 points), capital investment (up from 7.7 points to 9.3 points) and actual selling prices (up from 6.6 points to 9.3 points).

Other key results for the March 2017 quarter include:

  • Consumer confidence was the top issue most likely to influence business operations in the upcoming quarter (38.6%), followed by cash flow (13.1%) and the level of the Australian dollar (8.7%).
  • Barriers to growth in the year ahead included weak demand for products and services (16.3%) and utilities and operating costs (15.1%).
  • Almost three quarters of business (74.3%) do not intend to seek credit to fund growth in the March quarter, compared to 16.5% that do intend to seek credit and 9.2% that are undecided.
  • Around a third of business (32.3%) reported having a customer or supplier that became insolvent, or was otherwise unable to pay them in the past year.
  • Approximately 35.3% of businesses would choose to miss payments to trade suppliers if unable to pay all their bills on time, followed by payments on a business credit card (24%).

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