Australia has a problem

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Australian business confidence is falling. And holding back business investment is in turn holding back the economy and its transition from the mining boom.

That problem is that there seems to be a persistent gap between actual business conditions and confidence, or expectations, when it comes to business surveys. That’s an important handbrake on business investment because it speaks to enduring pessimism about the outlook for the economy.

Of course, business owners and leaders hoped that would change when prime minister Turnbull usurped former PM Tony Abbott.

But just like the reversal of fortune shown in today’s Newspoll – where Labor is ahead of the Coalition for the first time in the Turnbull prime ministership – and just like the continued collapse in consumer confidence, the release of the latest Dun & Bradstreet survey shows Australian business expectations about the future is falling.

Dun & Bradstreet’s Business Expectations Survey showed there was a “second consecutive decline in expectations, with businesses issuing subdued forecasts for the three-month period to June 2016, despite reporting an improved actual performance over the previous quarter.”

The Business Expectations Index (BEI) which is the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, fell to “12.7 points for the second quarter of 2016, down 6.2 points from 18.9 points for Q1 2016, and a fall of 7.4 points from 20.1 points for Q2 2015,” Dun and Bradstreet said.

The good news is that even this relatively weak result compared to recent strength is still “significantly higher than the 10-year average of 7.0 points,” the company said.

The fact that the “actuals” index rose to 12.7 from 11.0 the previous quarter highlights that expectations are being recalibrated toward reality as hope of a big change in the business outlook washes through.


Stephen Koukoulas, economic advisor to Dun & Bradstreet, said “it is difficult to pinpoint why businesses are reporting a souring in the business expectations climate, other than perhaps the issues that may be thrown up in the looming federal election and ongoing uncertainty surrounding global economic conditions, especially in China”.

He added that, “the BEI is consistent with GDP growth of around 2.5 per cent, which is a little weaker than the 3 per cent growth rate recorded in the year to the end of 2015”.

Interestingly, in light of solid household consumption in Q4 2015 and yesterday’s disappointing retail sales data, the industry breakdown showed “particularly pessimistic forecasts from the Retail and Services sectors, both of which reported sharp declines in expectations for the upcoming quarter”.

The survey showed retail expectations for the quarter ahead down 47.1% while services expectations more than halved. On a positive note, construction remained strong.