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Business Confidence down to end 2018 as Australia heads into election year

Source: Roy Morgan Business Single Source, Dec 2010-Dec 2018. Average monthly sample over the last 12 months=853.

Roy Morgan Business Confidence fell by 1.6pts (-1.4%) in December to end 2018 at 112.2 continuing a trend which has seen Business Confidence decline in six out of the last seven years in the final month of the year.

Business Confidence ended 2018 a significant 5.2pts below its level of a year ago in December 2017 and 3.9pts below its long-term average of 116.1. However, despite being below long-term averages for the last seven months of the year Business Confidence in 2018 averaged 115.3 – the highest yearly average since 2014 (a yearly average of 117.8).

Despite the declines late in 2018 businesses are still largely positive heading into the new year with a majority of businesses, 50.5%, saying the next 12 months will be a ‘good time to invest in growing the business.’

Roy Morgan Business Confidence in December is below the latest weekly ANZ-Roy Morgan Consumer Confidence, which is at 116.8 on January 12/13, 2019.

Roy Morgan Monthly Business Confidence -- Australia

Source: Roy Morgan Business Single Source, Dec 2010-Dec 2018. Average monthly sample over the last 12 months=843

December’s small decrease driven by greater concerns about business performance

  • Driving this month’s fall in Business Confidence was a decrease in perception about the performance of the business compared to a year ago with only 36.7% (down 5.6ppts), saying the business is ‘better off’ financially than this time last year (the lowest figure for this indicator since October 2016), compared to 29.4% (up 1.1ppts) that say the business is ‘worse off’ financially;

  • In addition respondents reported decreasing confidence about the performance of the business over the next 12 months with 43.8% (down 7.3ppts) expecting to be ‘better off’ financially  this time next year and 18.7% (down 2.2ppts) now expecting to be ‘worse off’ financially;

  • Views on the short-term prospects for the Australian economy were little changed with 48.4% (down 0.2ppts) of businesses expecting ‘good times’ for the Australian economy over the next year and 41.0% (down 3.9ppts) expecting ‘bad times’;

  • However, longer-term views on the Australian economy have declined in December with 49.4% (down 2.4ppts) expecting ‘good times’ for the Australian economy over the next five years and 40.0% (down 1.9ppts) now expecting ‘bad times’;

  • There is good news however with a bare majority of businesses, now 50.5% (up 0.6ppts) saying the next 12 months will be a ‘good time to invest in growing the business’, while only 38.6% (down 0.3ppts) say it will be a ‘bad time to invest’.

Business Confidence improving in Western Australia, but down in other States

In line with the month-on-month decrease, Roy Morgan Business Confidence for the December quarter 2018 is down slightly on a year ago at 113.1 driven by declines in five of Australia’s States.

Analysing the trends for Business Confidence by State shows the decrease in the December quarter reflected declines in the larger States of New South Wales, Victoria and Queensland joined by even steeper declines in Australia’s two smallest States of South Australia and Tasmania to drive the annual fall.

Business Confidence in New South Wales is down 1.4pts on a year ago to 114.6 although remains above the national average heading towards a New South Wales State election set to be held in March.

Victorian Business Confidence has also declined compared to this time a year ago with Business Confidence of 109.5 in the December quarter 2018, down 5pts on a year ago and now below the national average following the thumping election victory for the Andrews Government in late November 2018.

In the December quarter 2018 there were also decline in Business Confidence by 4.4pts to 112.5 in Queensland and by 5.9pts to 127.9 in South Australia. However, despite the annual decline, Business Confidence in South Australia remains comfortably above the national average to end 2018.

In contrast to the larger States Business Confidence in Western Australia has ‘bucked’ the national trend and increased by 12.3pts to 108.8 in the December quarter 2018.

Business Confidence by State – December Quarter 2017 cf. December Quarter 2018

Source: Roy Morgan Business Single Source, December Quarter 2017, n=2,675 and December Quarter 2018, n=2,365.

Michele Levine, CEO Roy Morgan, says Business Confidence has fallen to end 2018 as Australians gear up for an extended period of campaigning before a likely May Federal Election:

“Roy Morgan Business Confidence fell by 1.6pts (-1.4%) in December to 112.2 bringing a halt to three straight monthly increases following a change in Prime Minister in late August. Although Business Confidence has moderated in the second half of 2018 as political uncertainty  increased, 2018 turned out to be a relatively good year for the economy with Business Confidence averaging 115.3 – its best annual result for four years since 2014 (a yearly average of 117.8).

“The last few months since the leadership change have seen the Government lose its majority in Parliament after losing the Wentworth by-election in late October and be further reduced into minority by the defection of Victorian Federal MP Julia Banks to the cross-bench a month later.

“As we forecast in early December, the defection of Banks to the crossbench in late November was likely to negatively impact Business Confidence in December as a sense of ‘chaos’ appeared to envelop the Government. However, despite these setbacks, the Morrison Government appears determined to go full term and hold the Federal Election after a key State Election in New South Wales due in late March.

“The downward trajectory of Business Confidence in the second half of 2018 has been broad-based in a geographical sense with Australia’s largest and smallest States all down in the December quarter 2018 compared to a year ago. It is only the mining intensive State of Western Australia that has seen a boost over the last 12 months and which no longer has Australia’s lowest Business Confidence of any State.

“All five indicators are clearly in positive territory and a majority of businesses say the next 12 months will be a ‘good time to invest in growing the business’ while 49.4% expect ‘good times’ for the Australian economy over the longer-term of the next five years looking past this year’s Federal Election.

“Drilling down into the Business Confidence on an industry level reveals it is falls in the Retail trade, Finance & insurance and Arts & recreational services industries which contributed to the decline in overall Business Confidence in December with all three industries below the neutral level of 100.

“Despite these setbacks for some sectors of the economy there are several industries that experienced a positive December led by Mining, Accommodation & food services, Construction, Electricity, gas, water & waste and Public administration, safety & security which all improved their Business Confidence.”

Roy Morgan Business Confidence results in December are based on 780 interviews with a cross-section of Australian businesses. Business Confidence is below the 8yr average (116.1).

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