Next quarter to be the most challenging: D&B

Businesses have had a difficult start to the New Year and executives are anticipating the quarter ahead will be the most challenging yet, according to a new survey

Australian firms have had a difficult start to the New Year and executives are anticipating the quarter ahead will be the most challenging yet, according to the latest Dun & Bradstreet (D&B) Business Expectations Survey.

The survey reveals that an increasing number of firms expect sales, profits, employment and capital investment to weaken further in the June 2009 quarter.

The impacts of global and local economic conditions are evident in executives’ expectations for the June quarter, with 53 percent of firms anticipating declining sales and 60 percent having the same expectation for profits.

Expectations for employment and capital investment are following the

same downward trend, with 24 percent of firms expecting to cut back on staff and 10 percent anticipating a need to decrease capital investment.

Selling price expectations rose by 30 percent between the March and December quarters of 2008, hitting the highest level ever recorded by the survey in the March quarter of 2009.

Expectations have dropped back 5 percent, however, with three in four (74 percent) firms expecting that they will need to raise prices in the quarter ahead.

Changing credit market conditions and a falling Aussie dollar continue to impact firms, with six in 10 (57 percent) businesses negatively impacted by the credit market and seven in 10 (68 percent) hurt by the falling value of the dollar.

Wholesale businesses have reported the largest swing, with 43 percent indicating a positive impact from the falling dollar in July and 73 percent now noting a negative affect.

Downward movements in petrol prices are showing through with a 91 percent decline in the number of executives negatively affected by fuel costs since September. Fewer than 2 percent of firms now report a negative impact while 53 percent report a positive affect.

According to Christine Christian, Dun & Bradstreet’s CEO, the latest survey reveals a further drop in business sentiment and demonstrates that Australian executives are feeling the very real pressures stemming from the recessionary global climate and slowing local economic conditions.

"Credit and financial risks have increased markedly since the global financial crisis fully erupted in October 2008 and with the economy set to weaken further during 2009, cash flow problems are becoming a significant burden for Australian firms," she says.

"There is no doubt that businesses are facing a significantly heightened risk environment in 2009. As a consequence, an unwavering focus on business fundamentals and proper cashflow management is absolutely critical to maintaining the sustainability of Australian firms.

"The recently announced government stimulus package will provide some assistance to Australian firms, however, without a solid focus on the fundamentals the pressures for some businesses will likely become insurmountable."

The dramatic reductions in the official cash rate since October have impacted executives’ views on the issues that will influence their operations most in the June 2009 quarter. Fifty five percent of executives rank interest rates as the primary influence on their business in the quarter ahead, an increase of 19 percent since last month. This increases to 67 percent for retail executives.

Recent falls in fuel prices have also had an impact on Australian firms. Only 19 percent of executives anticipate that fuel prices will have the most significant influence on their operations in the June quarter, a decrease of 14 percent since last month.

Meanwhile, 17 percent of firms rank wages growth as their primary concern, an increase of 1 percent.

Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, says the extent of the economic slowdown that will be experienced in Australia remains unknown.

"The D&B survey indicates that Australian firms are expecting 2009 to be exceptionally challenging," he says.

"However, the prompt and substantial fiscal stimulus packages from the Federal Government and the record sharp reductions in interest rates by the Reserve Bank should offset a significant amount of the impact that the world financial crisis and global recession are having on Australian firms.

"Lower oil prices are helping to contain household and business costs and the lower value of the Australian dollar is encouraging exports and domestic spending. Consequently, the worst expectations of Australian businesses may not eventuate."

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