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Business confidence in March shows tentative improvement

Source: Roy Morgan Business Single Source (Australia), December 2010-March 2015. Average monthly sample last 12 months, n=1,045

Roy Morgan Research’s Business Confidence results in March showed an improvement of 6.7 points (up 6.3% to 112.4) from February. Despite the improvement, business confidence remains fragile as shown by considerable fluctuations over recent months and remains below both pre-federal election levels and the average for the last four years (117.6).

These March figures are the result of 908 interviews with all types of businesses across Australia.

The improvement in business confidence occurred across all components of the index but stemmed mainly from an increase in the proportion of businesses that believe the next 12 months will be a good time to invest in growing their business, which rose from 50% in February to 56% — the highest level so far this year and close to the long-term average. There was also some improvement in the economic outlook for the next 12 months and five years.

Monthly Business Confidence -- Australia


Source: Roy Morgan Business Single Source (Australia), December 2010-March 2015. Average monthly sample last 12 months, n=1,045

Norman Morris, Industry Communications Director, Roy Morgan Research says:

“This increase in business confidence is potentially good news for the Australian economy but whether it is sustained over coming months remains to be seen. The drop in the official cash rate by the RBA in February may have positively impacted on businesses’ plans to borrow, but this could easily be negated by strong economic head winds. And there are plenty of those blowing at the moment: from ongoing publicity about how the dramatic drop in iron ore prices will affect the federal budget and economic mood, to difficulties getting budget measures past the Senate; from political uncertainty and tax reform, to speculation about the forthcoming May budget. Global economic issues such as the pace of the US economic recovery, the slowdown in China and uncertainty in Greece also have the potential to undermine confidence.

“The decline in the Australian dollar will have both positive and negative impacts on the economy, but these are yet to be seen. The effect of monetary policy is also limited by the fact that, although business and consumer confidence are both positive, they are still at relatively low levels and are unlikely to drive strong growth until a more robust improvement is seen.

“Despite hopes that other industries would make up for the decline in the mining sector, these continue to show a subdued outlook and are unlikely to offset the loss. Construction has shown a small improvement in confidence, but manufacturing has fallen below average and retail only remains steady. The most positive major sectors are ‘finance and insurance’, ‘rental, hiring and real estate’ and ‘education and training’.

“A promising sign for Australia’s economic growth prospects is the fact that businesses are now more confident about investing in expansion over the coming year than they have been for some time. The proportion of those who believe it will be a good time to increase investment is at its highest level for 2015 so far. If this can be sustained over the coming months, the economy and the banks will benefit.

“While there are signs that banks are stepping up their efforts in the business market, they are likely to remain cautious regarding their lending in the current uncertain economic environment. However, to succeed in the business market, banks also need to improve their customer satisfaction levels, which currently lag well behind those of their personal customers. Their willingness to lend, as well as the extent to which they pass on interest rate reductions to businesses will certainly influence satisfaction and businesses’ intention to borrow.”

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