Business confidence has remained low during the September 2010 quarter.

The Commonwealth Bank Business SA Survey of Business Expectations for the September quarter showed that the South Australian confidence index increased marginally, by one point to 92 points.

The slight rise follows two consecutive decreases in business confidence, including a 26 per cent fall in the previous quarter.

The steady confidence levels reflect the movement of interest rates which have been at current levels since May 2010.

Business SA Acting Chief Executive Officer, Brett Mahoney, said that the survey results confirm that the local business community remains under pressure.

“There was a very small rise in business confidence in the September quarter, however confidence remains low following last quarter’s significant drop,” said Mr Mahoney.

“Local businesses and consumers were hit hard by the premature interest rate rises earlier this year and uncertainty surrounding the Federal election prevented businesses building any sort of momentum.

“Challenges still remain and in the last couple of months businesses have been faced with a significant increase in the minimum wage and increases in labour costs arising from transitional provisions to Modern Awards.

“Steady interest rates and a slowly improving domestic economy have prevented business confidence from dropping further in the September quarter.

“It is pleasing that sentiment towards general business conditions turned around with a 5 per cent rise to 88 points in the September quarter.”

The total sales revenue index also increased by 5 per cent and both general business conditions and total sales revenue are expected to be significantly higher next quarter.

Mr Mahoney highlighted that speculation of future interest rate rises continues to weigh down confidence.

“Almost two thirds of businesses expect interest rates to increase in the next quarter and small businesses across the State have been hit hard by a drop in consumer spending following previous premature interest rate rises,” said Mr Mahoney.Higher interest rates ahead

According to Joe Formichella, General Manager Corporate Financial Services, South Australia and Northern Territory, Commonwealth Bank, the rise in business sentiment over the past quarter shows that confidence is returning to the South Australian business community following two quarters of decline.

“Business confidence in South Australia seems to be on the rise, helped by stable interest rates and a firmer labour market. That said, this isn’t cause for celebration just yet, as confidence still remains relatively low when compared to this time last year.

“Business owners are still concerned about an array of issues such a short supply of skilled labour, a rise in interest rates over the coming quarter, increased overhead costs, stagnant export sales and increased wages,” said Mr Formichella.

Mr Mahoney said that businesses expect labour costs to continue to rise.

“Our local unemployment rate is now sitting above the national average and almost three quarters of respondents expect an increase in labour costs.

“Almost one third expect skilled labour to be harder to source, however nearly a half expect the unemployment rate to remain steady in the December quarter.

“Indications are that material and overhead costs will again increase next quarter.”

Two thirds of exporters indicated their export sales were the same as the previous quarter, and just under two thirds predicted much of the same in the next quarter.

Just under half of survey participants expect the Australian dollar to remain stable in the next quarter, while the remainder were split on whether it will rise or fall.

The September quarter 2010 survey also asked businesses about the impact of the Federal election, their cash flow and banking visibility.

More than 80 per cent of businesses were concerned by the policy uncertainty caused by the outcome of the Federal election, while 61 per cent believed the outcome would negatively impact their investment plans and 77 per cent believed it would negatively impact the economy.

Almost one third of the surveys’ respondents stated that they often had difficulties managing their cash flow because their customers were not paying their bills. 61 per cent indicated that it was essential to have full visibility over their banking. 

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