Australian businesses anticipate modest sales activity, difficult trading conditions and subdued consumer activity over the next few months.
As a result, businesses are lowering their profit expectations for the June 2013 quarter, while also reporting lower-than-expected actual profits for the December 2012 quarter.
Findings from Dun & Bradstreet’s National Business Expectations Survey shows the profit expectations index has fallen sharply to 11 for the quarter ahead, a drop of 12 points from the Q1 outlook. This movement comes in the wake of declining expectations for sales and selling prices, and a persistent, conservative approach to spending from consumers.
Meanwhile, there are also concerns of a new low for selling price expectations. The outlook for sales has declined for a second consecutive quarter, dipping below the index’s 10-year average level, to a score of 10. The decrease suggests businesses are adjusting their expectations to a continued period of restrained consumer spending and sentiment.
According to Dun & Bradstreet’s director of corporate affairs Danielle Woods the subdued profit expectations reflect a business outlook where sales activity is soft and consumers are applying a greater degree of consideration to their spending decisions.
“After previously demonstrating some buoyancy, the outlook for profits has taken a fall, which is consistent with movements in the other indices we’ve been tracking,” she said.
“With forecasts for sales and prices being lowered, in tandem with a more conservative attitude to spending from Australian consumers, it appears that businesses are anticipating their profits will be squeezed.”
In apparent efforts to stimulate activity, businesses have again lowered expectations for their selling prices. Retailers and wholesalers are leading the downward trend with negative indexes, suggesting the high Australian dollar continues to support low prices.
In further signs of a conservative approach, D&B’s survey has found 33 per cent of businesses plan to take advantage of interest rate levels to pay off more debt, compared to the 10 per cent that will use the low rate to increase their borrowings. The findings suggest that the effects of past interest rate cuts are still to flow through and stimulate growth activity from businesses, or increased spending by consumers.
Stephen Koukoulas, economic advisor to Dun & Bradstreet, said the Business Expectations Survey presents a disconcerting view of the economy in the early months of 2013.
“The softer outlook for the bulk of indicators suggests the cooling of economic activity through 2012 has continued into the New Year,” he said.
“The record low reading for selling prices suggests that the official inflation rate could fall further during the first half of 2013. If this shows up with the release of the March quarter inflation data in April, it will leave the Reserve Bank with scope to cut interest rates, if required.
“While a further interest rate cut is unlikely given the improving global economy and strength in financial markets, the Business Expectations Survey results suggests the risks ahead are for a slowing in sales and capital investment in the next few months.”