Mid-market business confidence returns to highest levels: Commonwealth Bank

Businesses still cautious but feeling more prepared for future

Commonwealth Bank’s Future Business Index Quarterly Update has reported a return in business confidence index from 4.3 to 9.3, the highest levels recorded by the Index.

At 9.3, the index returned to levels last seen in March this year when the Index recorded its highest ever score.

The Commonwealth Bank’s Index is an analysis of the views of financial decision makers in companies with a turnover between $10 million and $100m, measuring their outlook on business conditions, investment plans, and business challenges, projected revenue and how prepared they are to navigate volatile conditions.

The index results highlighted optimism in several different industries.

The retail sector continues to surge to highest levels recorded at 17.8 up from 10.2, helped by the Christmas season.

Transport and Logistics recorded an all-time high of 36.2 and claimed to be the most prepared for future business conditions.

Other sectors including business services (22.3), information, media and telecommunication (-21.7) and finance and insurance (12.4) also saw steady increases in optimism as costs fell. Commonwealth Bank’s Executive General Manager of Corporate Financial Services, Symon Brewis-Weston, said that while the trend has been towards an optimistic outlook, most mid-market firms are adopting a restrained approach.

“Despite rising confidence, we’re finding that it’s something of a ‘wait-and-see’ period for the mid-market. The feeling is that while companies expect a moderate decline in costs and they’re feeling more prepared for the future, there is little appetite for investment and major changes.

“The focus of this Index has been the common theme of cost management heading into 2013. Companies are placing less emphasis on growth at the moment and ensuring they have the financial support required for any unforeseen challenges in the future.

“Business confidence continues to fluctuate across a number of industries including transport and logistics. The levels of these fluctuations highlight how much can change in a quarter. That said, retail is one sector that continues to rise in confidence and the results from Christmas trading may improve sentiment even further,” said Brewis-Weston. While confidence in retail has remained strong, mining has seen a significant decline from 17.7 to -7.2 on the Index as a result of concern about increased international competition and a potential economic slowdown in China.

“The drop in confidence within the mining sector appears to be somewhat delayed, with the current challenges facing the industry expected to affect the previous Index when it actually rose seven points,” said Brewis-Weston.

At a state level, the picture is positive overall.

Six states and territories have seen boost in optimism, with Victoria and Tasmania remaining as the only states to experience a consistent rise in confidence, scoring 14 on the Index (up from 6.2), the report said.

South Australia and Northern Territory continue to fluctuate with a huge jump in confidence scoring 10.9 up from the previous Index score of -10.1.

New South Wales and Australian Capital Territory are the only regions to see a decline on the Index, seeing a decrease from 10.4 earlier this year to six.

Looking ahead to the next six months, almost half of companies claim to be well prepared for future business conditions, with Victoria, Tasmania and Western Australia being most likely to be well prepared, according to the report.

The majority of mid-market companies also report to have well controlled cost management and business strategies for the year ahead.

“Despite the positives that can be taken from the Index, the mid-market is playing it safe and avoiding any major changes or risks for the first half of 2013. Increases in domestic demand and consumer confidence are the biggest drivers for growth in the mid-market and as these factors continue to play a part, we will continue to see improvement across the sectors,” added Brewis-Weston.

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