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Business confidence has fallen in the March 2011 quarter, according to Business SA.

The Business SA Survey of Business Expectations for the March quarter showed that the South Australian confidence index decreased by three per cent to 92 points.

The decline in business confidence follows slight rises during the second half of 2010.

The pressures in the retail sector, the high Australian dollar and the volatile economic recovery have contributed to the decline in business confidence.

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

“The decline in business confidence confirms that the local economy remains under pressure and businesses are concerned about the outlook,” said Mr Vaughan.

“The fall in confidence also reflects the two-speed economy and particularly the weakness in retailing and the effect of the high Australian dollar.

“The widespread impact of natural disasters may have also affected confidence throughout the business community.

“Challenges remain throughout the local business community and it is concerning that confidence remains low despite no rate rises this year.

“Low consumer and business confidence is also having an impact on our local unemployment rate, which remains well above the national average.

“The positive sentiment towards general business conditions also came to a halt in the March quarter, decreasing five per cent to 88 points.”

The total sales revenue index decreased 3 per cent to 92 points in the March quarter 2011, however total sales revenue and general business conditions are expected to slightly improve in the next quarter.

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

Clouds“Over a third of businesses expect interest rates to rise in the next quarter and this is a major concern for business given the damage that was caused to many small businesses following the rate rise before Christmas,” said Mr Vaughan.

“With the two-speed economy, it is essential that rates remain on hold to allow business and consumer confidence here in South Australia to gather some much needed momentum.”

Mr Vaughan said that the expectation is that labour costs will continue to rise.

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

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

“Following recent natural devastations across the country, demand for skilled labour will no doubt continue in the months ahead.

“Indications are that overhead costs will again increase next quarter, with more than half of businesses expecting costs to rise in the June quarter.”

One quarter of exporters indicated their export sales were down from the previous quarter, and over two thirds predicted exports to remain stable in the next quarter.

Just over half of survey participants expect the Australian dollar to remain stable in the next quarter, while the majority of the remainder expect the dollar to fall.

Carbon Tax: The March quarter 2011 survey also asked businesses about a carbon price, electricity prices and climate change policies.

Almost 70 per cent of businesses did not support the introduction of a carbon price.

“There is certainly concern about the impact of a carbon tax which will provide a major blow to the business community and overall competitiveness,” Mr Vaughan said.

“As costs go up, prices will follow and this will make businesses less competitive and put jobs at risk.”

When asked about their preference between a carbon tax and an emissions trading scheme, 45 per cent of businesses said neither, 20 per cent preferred an emissions trading scheme and 11 per cent preferred a carbon tax. Almost 13 per cent said that they did not know the difference.

Around 85 per cent of respondents indicated that a carbon price would have a negative impact on their business and more than two thirds revealed that higher electricity prices were impacting their profitability.

On the question of broader Government climate change policies, encouraging energy efficiency and increasing research and development spending on new technology were the preferred options (40 per cent each). Introducing a carbon price was preferred by just 6 per cent of respondents and planting trees was preferred by 9 per cent of respondents.

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