Commonwealth Bank of Australia’s Future Business Index has revealed that despite a subdued outlook by Australia’s mid-market companies, most remain cautiously optimistic.
In what is a mixed bag of business outlook and expectations, reflecting Australia's complex multi-speed economy, confidence is higher than 12 months ago when it sat at -0.3, the bank said.
One in two mid market organisations expect revenues to increase in the next six months.
CBA’s Index is an analysis of the views of financial decision makers in companies with a turnover between $10 million to $100 million, measuring their outlook on business conditions, investment plans, business challenges, projected revenue and how prepared they are to navigate volatile conditions for the six months ahead.
Sectors that have shown signs of growth over the last six months include retail and mining. Retailers got out of the red and jumped 11.2 points to 10.2, driven by improved business conditions and a greater preparedness to deal with future volatility.
The mining sector was up by seven points to 17.7 on the back of strong results, according to the index.
Sectors that saw significant declines include construction (-11.1), business services (-17.9) and transport and logistics (-18.2) as profits have fallen and the appetite for risk has slowed.
“Despite signs of cautious business sentiment it’s important to look at these results over the long run to get the full picture and we can see Australia’s mid-market is actually in a better place than it was at this time last year, with half expecting revenues to increase,” Commonwealth Bank executive general manager of corporate financial services, Symon Brewis-Weston, said.
“Confidence in the mining sector continues to surge, however, the surprise for many is the rise in confidence in retail which has seen a significant turnaround. Retail is often a bellwether sector for the broader economy so this is particularly promising.”
But concern about increased international competition and a potential economic slowdown in China means confidence in Western Australia has declined sharply by 16.7 to -2.
However, the picture at the state-level is mixed.
Victoria and Tasmania were the only states to experience an increase in confidence, scoring 6.2 on the index, up from 4.0.
South Australia and the Northern Territory are the most pessimistic, suffering decrease from 7.3 earlier this year to -10.1.
New South Wales and Australian Capital Territory remain the most confident despite a minor decrease from 14 to 10.4.
Business conditions over the last six months were steady with 51 per cent of mid-market companies reporting increased revenues and 46 per cent reporting higher profits. Transport & logistics, finance and insurance, and wholesale trade companies saw the largest revenue increases. One third of mid-market companies saw profits fall over the last six months and construction was the hardest hit.
Looking ahead to the next six months, most companies expect to see operating costs rise due to surging energy prices and their appetite for risk has fallen with many saying they are unwilling to invest in more staff or higher capital expenditure. Mining companies in particular are less likely to undertake new capital investment with just 29 per cent saying they plan to increase expenditure, down from 45 per cent in the last index.
“Despite fluctuations across the index, business conditions have remained steady with most mid market organisations prepared for future volatility through well-defined business strategies and cost controls. Just under half, 43 per cent, say increased demand and consumer confidence means they will seek to expand in the domestic market over the next six months which is a very positive sign,” Brewis-Weston said.