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Business confidence in May boosted by budget – but remains fragile

Source: Roy Morgan Business Single Source (Australia), December 2010-May 2015. Average monthly sample last 12 months, approx. 1,000.

Following the May budget, Roy Morgan Research’s Business Confidence increased by 9.6 points (up 9.1% to 114.7) from April. This is the highest level since January 2015 (114.9) but remains below the five-year average of 117.3 and the peak of 136.3 in October 2013. Fluctuations in confidence over the last six months show that confidence is fragile and easily impacted by events.

These May figures are the result of 1,376 interviews with all types of businesses across Australia.

The increase in business confidence occurred across all components of the index but stemmed mainly from an increase in the proportion of businesses believing that Australia will experience good economic conditions over the next 12 months. The level of agreement with this positive outlook for the economy has increased from 51% in April to 60% in May – the highest level since November 2014.

There was also a big increase in the positive longer-term outlook for the Australian economy over the next five years, up from 56% in agreement in April to 63% in May.

Monthly Business Confidence -- Australia

business-confidence-chart

Source: Roy Morgan Business Single Source (Australia), December 2010-May 2015. Average monthly sample last 12 months, approx. 1,000.

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

“The increase in business confidence in May was most likely the result of a generally positive immediate media reaction to the federal budget and its focus on small business. However, the tax incentive in the budget has only had a minor impact on the level of businesses considering that the next 12 months would be a good time to invest in growing their business. Currently 57% think it is a good time to invest in growth, up from 53% in April.

“It now appears that the combination of a decline in interest rates, the reduction in tax rates for small business and the proposed immediate tax write-offs for expenditure up to $20,000 are likely to have only limited positive impact while a number of economic headwinds remain. The recent positive figures on GDP growth, for example, were followed the next day by a falling share market, weak retail sales and a record trade deficit, as well as ongoing global uncertainty regarding Greece and other areas. The problems relating to getting important budget measures past the senate, the rapidly growing estimates of the budget deficit, and the fact that over two million Australians are either unemployed or underemployed do not contribute to a positive business environment.

“Despite hopes that other industries will make up for the decline in the mining sector, they continue to show a subdued outlook and so are unlikely to offset the loss. Confidence in the construction industry is improving and is now a little above average but manufacturing continues to decline and is below average. The very high profile retail sector is steady but remains below average.

“Growth in the Australian economy will not only be determined by the willingness of businesses to borrow but by banks being prepared to lend. If banks wish to grow their market share in the business sector they will need to improve their relationship with business – as shown by the much lower satisfaction levels for all the major banks, when compared to their retail customers”.

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