In the lead-up to the middle of the year, fewer executives are planning to make a capital investment into their business during the coming months.

Dun & Bradstreet’s National Business Expectations Survey shows the outlook for capital investment moving down nine points to an index of five, its lowest point since the September 2011 quarter.

Investment expectations dropped most significantly in the manufacturing sector, with the index among non-durables manufacturers at negative one for the quarter ahead. The outlook for retailers is also in negative territory, while the capital investment index for wholesalers is flat. A varying economic recovery appears responsible for the continuing mood of caution among businesses, which is in turn blunting investment plans.

D&B’s survey finds that just seven per cent of executives intend to seek finance or credit to grow their business in the quarter ahead. Additionally, more than 40 per cent of businesses expect to take advantage of the low interest rate levels to pay down their debt, as opposed to the eight per cent who plan to increase their borrowings.

“What we are seeing is a business community that is still wary, still looking for sustained improvement in the state of the economy,” said Danielle Woods, Dun & Bradstreet's director of corporate affairs.

“At the moment, the economic performance is patchy and businesses are responding with a more conservative approach; limiting non-essential investments, avoiding the use of additional credit and reducing their debts where possible.

“With overseas markets continuing to produce mixed news, lingering effects of the global financial crisis still present here and a Federal Election approaching, businesses appear to be adopting a wait-and-see approach.

“It is apparent that this will only shift once we see a more uniform recovery, signs of which we will look for in our September quarter outlook.”
In-line with a reduced investment outlook, the Business Expectations Survey reveals a fall in the June quarter outlook for sales, selling prices, employment, inventories and profits. The findings confirm that while sections of the economy are showing some positive signs – noticeably the Australian sharemarket – business sentiment remains conservative.

According to Stephen Koukoulas, economic advisor to Dun & Bradstreet, the Business Expectations Survey provides a check to some of the recent favourable news on the economy.

“Feedback from the business sector is that the economy is at risk of a significant cooling in activity into the middle of 2013, with weak credit growth and subdued economic activity the main concerns,” Koukoulas said.

“With weakness in the outlook for capital investment concentrated in manufacturing, it is clear the very high level of the Australian dollar continues to cast a negative impact on significant parts of the economy.

“While some cooling in business investment has been anticipated for some time, the flow through to softer profits, employment and sales is unwelcome. The low interest rates currently prevailing are helping firms and households reduce debt, which bodes well for the medium term, but in the short term, there appears to be downside risks to growth.”