High dollar, low expectations as manufacturing and tourism continue to struggle

Fewer business executives are planning on making capital investments in the June quarter, amid a fall in business expectations.

The latest Dun and Bradstreet business expectation survey released today indicates business outlook for capital investment has moved down nine points on the index to its lowest point since September 2011.

But there is some hope – Dun & Bradstreet economic advisor Stephen Koukoulas says improvement is expected across the year.

“We’re in a grey zone, but I think we’ll have a stronger economy by year’s end. Interest rates are at low levels, they’re accommodative as we say, and there is a pick-up in house prices. We also have to look at the global economy, China is picking up as is the United States.

“There are threats out there, but I think the balance is going to be a little more optimistic. I don’t think we’ll see a strong economic boom, but it’ll be the consumer who will drive it,” he says.

The survey found more than 40% of businesses intend to utilise low interest rate levels to help pay down their debts, with only 8% intending on increasing their borrowings.

The greatest declines were in the manufacturing and tourism sectors as these industries continue to struggle against the high Australian dollar and lower import costs.

The survey found retailers also have a negative outlook with the capital investment index for wholesalers remaining flat.

Koukoulas told SmartCompany the lower business outlook is continuing to be influenced by the high Australian dollar.

“We’re seeing a continuation of the economy adjusting to the high dollar. There’s no surprise here and manufacturing is once again one of the weakest sectors and it has been for some time.

“Firms who are manufacturing goods for the local market are being outcompeted by cheap imports and, secondly, we are spending our money on imported items and on international tourism. It’s currently cheaper to go to Bali than to Queensland or Tasmania, so tourism is also suffering,” he says.

The survey also found the selling prices of goods are expected to stay low as the economy has not picked up enough to support higher prices.

“Selling prices are remaining at historical lows. This is caused by the low inflation rate, not having a robust enough economy, the high Australian dollar and low import prices. Consumers are currently able to import things like cars and household appliances cheaper than buying them in Australia,” Koukoulas says.

Fewer retailers are expecting to increase their sales and profits in the next three months in contrast to the previous quarter, with the sales index retreating to 13, its lowest point since March 2012. This is likely to be a result of consumers continuing to favour saving money over discretionary spending.

In January, Dun and Bradstreet reported businesses expected profits to increase.

The survey has confirmed while some sectors of the economy are improving, particularly the sharemarket, business sentiment remains conservative.

In a statement, Dun and Bradstreet director of corporate affairs Danielle Woods said current economic performance was patchy, consequently affecting businesses’ outlooks.

“What we are seeing is a business community that is still wary, still looking for sustained improvement in the state of the economy. 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,” Woods says.