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Business confidence has fallen in the June 2011 quarter.

The Business SA Survey of Business Expectations for the June quarter showed that the South Australian confidence index decreased by 11 per cent to 81.5 points.

This significant fall follows smaller decreases in the previous two quarters.

The decrease in business confidence reflects the impact of the Fair Work Australia decision to raise award rates by 3.4%, anticipated increases in interest rates, the rising cost of utilities, the proposed carbon tax and weak consumer confidence.

Business SA Chief Executive Officer, Peter Vaughan, said that the survey results reflected the concerns of the local business community.

“This significant decline in business confidence confirms that businesses are under pressure and are concerned about the immediate outlook,” said Mr Vaughan.

“The extent of the slump in confidence is also largely due to low consumer spending and the high Australian dollar.

“Businesses are being hit with rising costs of rates and utilities, wage increases, the carbon tax and very weak consumer confidence.Graph image

“International pressures, such as the Australian dollar, debt problems in Europe and concern about the US economic recovery also contributed to this quarter’s fall in business confidence.

“The sentiment towards general business conditions also continued to decline in the June quarter, decreasing eight per cent to 81 points.

“This drop in business conditions is at odds with the expectations from the March quarter.”

The total sales revenue index decreased eight per cent to 85 points in the June quarter 2011, however total sales revenue and general business conditions are expected to improve slightly in the next quarter.

Mr Vaughan highlighted that ongoing speculation surrounding future interest rate rises continued to restrict confidence.

“Almost 60 per cent of businesses expect interest rates to rise in the next quarter and this is a major concern given the current challenges and the fact there have been no rate rises this year,” said Mr Vaughan.

“We are feeling the impact of the two-speed economy and it is essential that interest rates remain on hold to allow a widespread recovery in the economy.”

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

“A very large proportion of respondents expect labour costs to increase in the next quarter, which is no surprise given the recent National Wage Case decision,” Mr Vaughan said.

“Just under 30 per cent of respondents found skilled labour harder to source than the previous quarter, and despite the recent fall in the State’s unemployment, almost a half of businesses expect the unemployment rate to increase in the September quarter.

“This is a concerning outlook and 27 per cent of businesses plan to reduce staff levels in the upcoming quarter.Calculator image

“Indications are that overhead costs will again increase, with more than two thirds of businesses expecting costs to rise in the September quarter.”

The majority of exporters predicted exports to remain stable in the next quarter, while almost half expect the Australian dollar to remain steady.

Impacts on business: The June quarter 2011 survey also asked businesses about the imminent Work, Health and Safety legislation and impact of the Fair Work Australia decision to raise award rates by 3.4% on employment levels, capital investment spending and profitability.

Almost three quarters of respondents indicated that they were aware that new Work, Health and Safety legislation, regulations and codes of practice come into force on 1 January, 2012.

The primary concerns with the new WHS laws, regulations and codes of practice were: 32 per cent of businesses said compliance, 21 per cent indicated confusion over responsibilities, 16 per cent suggested red tape and 6 per cent mentioned penalties.

“Over 60 per cent of businesses anticipated a negative impact on employment levels from the Fair Work wage decision,” Mr Vaughan said.

Following the decision to increase award rates, 52 per cent of respondents anticipate a negative impact on capital investment spending, while almost 70 per cent of respondents expect that the decision will negatively affect business profitability.

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