Business confidence has shown signs of recovery in the December 2011 quarter, according to the State’s leading business membership organisation, Business SA.

The Business SA Survey of Business Expectations for the December quarter showed that the South Australian confidence index increased by 22 per cent to 90.8 points.

This increase follows decreases in the previous four quarters and local business confidence is now back to similar levels of this time last year.

The improvement in positive business and consumer sentiment has been largely influenced by the Reserve Bank’s decision to cut interest rates in the two months before Christmas.

Business SA Chief Executive Officer, Peter Vaughan, said that the survey results provided some positive news after a tough year in 2011.

“Business confidence has been declining at a fast rate over the past 12 months, however it is pleasing that there has been some recovery in business sentiment,” said Mr Vaughan.

“While it is positive to see the increase in local business confidence, we are coming off levels from the previous quarter that were the lowest in four and a half years.

“The Reserve Bank has an important role to play in getting the economy back on track and the two rate cuts before Christmas provided a timely boost to the local economy.

Money“It remains a tough environment and concerns continue surrounding the impending carbon tax, the high value of the Australian dollar, rising costs for businesses and weak consumer confidence.

“The sentiment towards general business conditions continued to decline in the December quarter, decreasing nine per cent to 71 points. This drop in business conditions is at odds with expectations from the September quarter.”

The total sales revenue index decreased nine per cent to 81 points in the December quarter 2011, with total sales revenue and general business conditions expected to improve slightly in the next quarter.

Mr Vaughan highlighted that the positive speculation surrounding interest rate levels had a major impact on the confidence turnaround.

“Half of businesses expect interest rates to be cut again in the next quarter, and it is important that the Reserve Bank acknowledges the need for further rates relief in the coming months,” Mr Vaughan said.

“It is essential that the economic momentum continues following the busy Christmas trading period and that the gap narrows between the robust and weakened industry sectors.”

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

“The majority of respondents expect labour costs to increase in the next quarter, and these costs are expected to be spread across wages and other associated labour costs,” Mr Vaughan said.

“Just over 20 per cent of respondents found skilled labour harder to source than the previous quarter, and almost half of businesses expect the unemployment rate to increase in the March quarter.

“While this is a concerning outlook, almost three quarters of respondents expect their own headcount to remain stable in the upcoming quarter.

“Indications are that overhead costs will again increase, with almost 50 per cent of businesses expecting material costs to rise in the next quarter.”

More than two thirds of survey participants expect their export sales to remain stable in the March quarter, while more than 50 per cent of businesses expect the value of the Australian dollar to remain stable.

Impacts on business: The December quarter 2011 survey asked about the impact of Modern Awards on profitability and the wider implications of the Fair Work Act on business operations.

“It is a concern that a combined majority of survey respondents indicated that the Modern Awards had a moderately or significantly negative impact on business profitability,” Mr Vaughan said.

“Approximately 80 per cent of respondents reported unfair dismissal laws to have had a negative impact on their employment intentions.”

Almost half of survey respondents reported to have not utilised Individual Flexibility Arrangements.

Support to reinstate individual workplace contracts is strong with almost 60 per cent in favour, while the cost of compliance has increased for almost half of businesses since the introduction of the Fair Work Act.

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