Business confidence has remained low during the December 2010 quarter.

The Commonwealth Bank Business SA Survey of Business Expectations for the December quarter showed that the South Australian confidence index increased marginally, by four per cent to 96 points.

The rise in business confidence follows a slight increase during the previous quarter, which comes after significant drops in confidence levels earlier in the year.

The interest rate rise in November prevented confidence levels bouncing back in the lead up to the Christmas trading period.

Business SA Chief Executive Officer, Peter Vaughan, said that the survey results confirm that pressure remains on business.

“While it is pleasing that local business confidence is heading in a positive direction, confidence levels remain low and require a significant boost,” said Mr Vaughan.

“The interest rate rise in November clearly had an impact on business and consumer confidence, which was damaging in the lead up to Christmas.

“Challenges still remain throughout the local business community and the rate rise, coupled with concerns over financial stability in Europe, deterred any significant bounce back in confidence in December.

“Improvement in some parts of the domestic economy enabled confidence to gain some ground in the December quarter.

“The local economy has been faced with high unemployment and slow retail trade, making November’s rate rise more damaging.

“It is pleasing that sentiment towards general business conditions remained positive with a 6 per cent rise to 93 points in the September quarter.”

The total sales revenue index increased by 4 per cent and both general business conditions and total sales revenue are expected to be significantly higher next quarter.

Mr Vaughan highlighted that speculation of future interest rate rises continues to restrict confidence.

“Almost 70 per cent of businesses expect interest rates to increase in the next quarter and this is a major concern given the many small businesses across the State that are struggling to build any sort of momentum,” said Mr Vaughan.

According to Joe Formichella, General Manager Corporate Financial Services, South Australia and Northern Territory, Commonwealth Bank, the further shift in positive sentiment was welcome news for the South Australian economy, particularly against the backdrop of continuing global economic uncertainty.

“Whilst there are still concerns amongst businesses in South Australia, confidence is continuing to climb and it will be important for this trend to continue if we are to see an associated positive effect on future business investment,” said Mr Formichella.

“It is worrying, however, to see that almost one-third of businesses stated that they regularly had difficulties managing their businesses’ cash flow due to late or non-payments from their customers. This serves as a timely reminder to businesses on the importance of scenario-planning in order to best manage adverse business conditions.”

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

“Our local unemployment remains above the national average and almost three quarters of respondents expect labour costs to increase in the March quarter.

“A quarter of respondents found skilled labour harder to source than the previous quarter, however nearly a half expect the unemployment rate to remain steady in the March quarter.

“Indications are that overhead costs will again increase next quarter, while half expect the cost of materials to remain the same.”

Two thirds of exporters indicated their export sales were the same as the previous quarter, and almost 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 December quarter 2010 survey also asked businesses about environmental legislation and regulations, their cash flow and major issues for 2011.

Almost 60 per cent of businesses stated that they didn’t have an environmental plan and a quarter indicated concerns with environmental legislation and regulations.

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.

The biggest issues facing business in 2011 included business management and leadership, followed by the global economic recovery and international market volatility.

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