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Tough year ahead say businesses

A new survey of businesses suggest a tough year ahead, with some indicators falling to record low levels, since the survey began in 1998.

The Australian Chamber of Commerce and Industry (ACCI) survey shows the majority of its indicators remain below their five-year averages over the December 2012 quarter. Expectations for the 2013 March quarter were also down, with business sentiment weak, despite a recent improvement in trading conditions.

Businesses are becoming increasingly pessimistic about Australia’s economic performance and the climate for business investment. Over the next twelve months, businesses expect further interest rate cuts, while unemployment is expected to remain elevated.

The survey highlights that government regulations, business taxes and government charges have put significant pressure on business investment, and constrained capital expenditure plans.

ACCI chief economist Greg Evans has told reporters in Canberra, “This builds a strong case for the need for further interest rate cuts”, adding, “The economy would certainly benefit from further rate cuts, and our expectation is that we will see that throughout 2013.”

We’ve already seen the building industry report that it is expecting a tough 2013, without further assistance from the RBA or government. The pressure is now on the Reserve Bank of Australia to cut rates further. The central meets for the first time in 2013, in the first week of February.

Tough business conditions, especially business investment, will impact on Australian Banks. Already struggling in a low credit growth environment, the major banks including Australia and New Zealand Banking Group (ASX: ANZ)Commonwealth Bank (ASX: CBA)National Australia Bank (ASX: NAB) and Westpac (ASX: WBC), could see credit growth decline even further.

That could put pressure on their margins, and force the banks to cut costs, as well as deposit rates, while keeping their lending rates at elevated levels.

The Foolish bottom line

The results of the survey are pretty much in-line with the results from January 2012. Despite the dreary outlook back then, the Australian share market still managed to add 14% over 2012. Seems to me that either many businesses have an entrenched gloomy outlook, or there’s a disconnect between business views and actual real-world results.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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