Businesses feeling the pinch

Business confidence declined by 2.9 points in April 2013 to reach 120.0, down further from the recent peak of 123.8 reached in February this year, according to Roy Morgan research.

The decline confirms that Australian businesses are under increasing pressure, even in Western Australia.

The number of businesses reporting they were ‘better off than last year’ fell from 27% of businesses to 24%, and the proportion of businesses reporting the next 12 months as a good time to invest fell from 58% to 55%.

The proportion of businesses expecting to be better off next year also fell from 38% to 36%.

Western Australia, in particular, has reduced its lead in business confidence over other states from more than 5 points (above NSW) in March, to only 1.2 points in April (126.6 in WA; NSW 125.4).

The finance sector (140.1, down 4.5 points), manufacturing (108.4, down 3.6 points), transport (116.9, down 3.6 points), administration services (115.2, down 5 points) and personal services (113.1, down 5.6) all contributed to the overall decline in business confidence during April.

Nigel Smith, director of business research, Roy Morgan Research, says:

“Following the RBA’s 0.25 basis point cut to the cash rate in December 2012, Roy Morgan’s business confidence measures showed increases to a high point in February 2013.

“The additional cut in interest rates of 0.25 basis points clearly seeks to rekindle the momentum in the economy that businesses reported after the December rate cut. However, even if the same boost to business confidence achieved over the Christmas period can be repeated, it is likely to disappear as quickly as the December effect did, given current economic conditions.

“Cutting interest rates can only boost business confidence to the extent that it improves economic activity – which in turn depends on how much of the interest rate cut is passed on to mortgage holders and business borrowers by their banks.

“The short lived impact of the December rate cut suggests the banks will need to pass this entire cut on to all of their customers to improve business confidence.”