Gloomy expectations for Q3

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Businesses are anticipating a subdued third quarter ahead, with expectations for sales and selling prices down to their lowest levels since 2014 according to Dun & Bradstreet’s latest Business Expectations Survey.

The survey reveals sales expectations for Q3 fell from 23.6 points in the previous quarter to 21.4 points, while selling price expectations plunged from 13.7 points to 9.2 points.

Expectations for employment and profits also decreased, with capital investment posting the only positive result – up from 8.7 points to 10.3 points.

Stephen Koukoulas, economic advisor to Dun & Bradstreet, highlights the survey was conducted prior to Brexit and the Australian federal election, so the results should be treated with caution.

“There were some mildly encouraging signs, with expectations for capital expenditure edging up from the recent low point,” he explains. “There were, worryingly, signs of further weakness in expected sales and selling prices, the latter of which points to ongoing low inflation.”

The Business Expectations Index, which is the average of the survey’s measures of sales, profits, employment and capital investment, remained largely steady at 12.3 points for Q3 2016, just down from 12.7 points recorded in Q2.

“The next few Business Expectations Surveys will, arguably, hold a great sway as they will reflect the business reaction to Brexit and the result of the recent Federal election,” says Koukoulas.

“Any slide in expectations will likely see the Reserve Bank opt to cut interest rates to fresh record lows.”

So what are the issues expected to influence businesses in the September quarter? According to the survey, consumer confidence topped the table (34.4%), followed by cash flow (15.4%) and the level of the Australian dollar (13.4%).

The good news is the majority of businesses are more optimistic about growth in the next 12 months (62%) compared to 2015, while 29% are less optimistic and 9% are undecided.

The biggest barriers to growth in the year ahead were revealed to be weak demand for products and services (22%) and a shortage of skilled labour (12.4%).

More than three-quarters of businesses (79.8%) do not intend to seek finance in the upcoming quarter to fund business growth, while 11.9% intend on doing so and 8.3% are undecided. 

The data also unveiled actual results for the March 2016 quarter, showing a decline across all key indexes:

  • Actual employment fell from 8.5 points in the previous quarter to 2.3 points (a 2.5-year low)
  • Sales plummeted from 22.4 points to 12.7 points
  • Actual profits decreased from 8 points to 1.1 points (a four-year low)
  • Capital investment dropped from 11.9 points to 8.2 points
  • Selling prices declined from 11.2 points to 8.4 points (a 2.5 year low).

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