Rising business confidence has stalled during the March 2010 quarter following continued increases in interest rates, according to Business SA.

The Commonwealth Bank Business SA Survey of Business Expectations for the March quarter showed that the South Australian confidence index decreased four per cent to 122.7 points.

It is the first decrease in business confidence since the same time last year when confidence fell to record low levels.

While it was highlighted that there are still concerns for business, the brake on confidence for the March quarter is being attributed to the continued increases in interest rates and the uncertainty associated with the State election.

Business SA Chief Executive Officer, Peter Vaughan, said that the survey results indicated that many challenges still remain for the local business community.

“The decline in business confidence confirms that the economic recovery is still in its early stages and remains fragile,” said Mr Vaughan.

“Businesses have been able to see the light at the end of the tunnel and we have seen confidence rising over the past three quarters. Premature rate rises however have slowed consumer spending and hurt small businesses across the State.

“The positive sentiment towards general business conditions also came to a halt in the March quarter, remaining at 108 points.”

According to respondents, the decrease in confidence also appears to be associated with the impending State election.

“Elections always create an element of uncertainty throughout the business community, and this is one thing that businesses don’t like to deal with.

“Many businesses were looking to capitalise on South Australia’s busy calendar of events in the first quarter of 2010, however interest rates appear to have dampened those expectations with sales revenue down in the March quarter.”

According to Joe Formichella, General Manager Corporate Financial Services, South Australia and Northern Territory, Commonwealth Bank, the dip in confidence suggests South Australian businesses are cautious about what the future holds.

“Despite expectations last survey that we’d continue to see a lift in business sentiment over the March quarter, that hasn’t been the case. The figures suggest that business owners are playing it safe due to expectations that interest rates will continue to rise over the next quarter as well as uncertainty around what the recent South Australian State election will mean for business owners.

“That said, it’s important to keep in mind that it’s not all doom and gloom. According to the survey, business confidence is still hovering around 10-year highs, which suggests that the South Australian economy has a lot of momentum behind it, and will continue to perform well over the next year,” Mr Formichella said.

Mr Vaughan said that with South Australia having the lowest unemployment in the country, total labour costs are expected to rise.

“The majority of businesses did not see a change in sourcing professional, skilled or unskilled labour during the March quarter, however more than 75 per cent of businesses expect total real labour costs to increase in the next quarter.

“With record low unemployment in South Australia, just 25 per cent of respondents anticipate an increase in the unemployment rate in the June quarter.

“Indications are that material and overhead costs will remain stagnant.”

The majority of exporters indicated their export sales were the same as the previous quarter, and more than two thirds predicted much of the same in the next quarter.

“Again the ongoing uncertainty in international financial markets has divided businesses on their opinion of the value of the Australian dollar,” Mr Vaughan said.

Almost half of survey participants expect the Australian dollar to remain stagnant in the next quarter, while a large proportion of the remainder predicted it to increase.

The March quarter survey also asked businesses about their capital expenditure plans, working capital, cash flow and banking visibility.

More than half stated that changes in lending criteria has not affected their capital expenditure plans, while a quarter noted that it had provided some negative impact.

Almost 70% of businesses stated that changes in lending criteria have not affected their working capital.

Half of the respondents stated that they sometimes had difficulties managing their businesses’ cash flow because their customers were not paying their bills.

More than half indicated that it was essential to have full visibility over their banking.

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