Business activity expected to lift in 2014

Borrowing and investment plans strengthen

7 January 2014

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Two out of three Australian businesses (68 per cent) are more optimistic about growth this year compared to 2013, with the positive mood lifting first quarter expectations for sales, profits, selling prices, investment and employment to their highest levels in 12 months.
With greater activity expected, Dun & Bradstreet's Business Expectations Survey reveals that 18 per cent of businesses are planning to access new finance during Q1 to grow their operations; the survey's highest response since Q4 2011.

The pick-up in borrowing plans is reflected in stronger capital investment and employment intentions, which have recovered from negative territory during the previous quarter and moved above their respective 10-year averages.

Thirteen per cent of businesses plan to increase capital spending in Q1 2014, compared to the five per cent which will decrease, lifting the investment index from -0.4 points last quarter to 7.2 points.

Meanwhile, hiring plans have also strengthened, with 15 per cent of businesses intending to take on more staff while seven per cent plan to reduce their employment levels. The response has taken D&B's employment index to a three-year high of 8.8 points.

BEX Q1 2014 final - chart 1

In addition to a turnaround in business spending intentions, D&B's sales index has jumped to 27.5 points, its highest point in 12 months, while the profits index has reached 25 points, its highest level since the first quarter of 2011.

With strengthening business conditions, 24 per cent of businesses are planning to raise the prices of their products and services during the first quarter of the year. While supporting healthier profit margins, the increase presents a potential inflation concern to economy.

"These latest findings further support the picture of an economy that has found its feet following a 2013 of weak and irregular business conditions," said Danielle Woods, Director of Corporate Affairs at Dun & Bradstreet.

"With companies looking ahead with optimism, forecasting strong sales and profits, and most recently showing a willingness and capacity to borrow money to grow their operations, the signs are positive for the New Year," she said.

"In particular, the increases in hiring and capital investment intentions indicate that businesses are preparing for a year of stronger growth and business activity," Ms Woods added.

Corresponding to the more positive outlook, D&B's Business Expectations Survey has found that fewer companies see obstacles to growth in 2014. When asked to identify the biggest barrier to growth in the year ahead, the most common response (35 per cent) was 'no major barrier'.

BEX Q1 2014 final - chart 2

"The new year is starting with business expectations at very optimistic levels," said Stephen Koukoulas, Economic Adviser to Dun & Bradstreet.

"Both sales and profit expectations continue to lift, signalling stronger economic growth in the early months of 2014.
"The employment outlook has also improved markedly, suggesting that the unemployment rate may soon start to fall as job creation picks up.

"If there is one cloud on the horizon, it is the expected lift in selling prices. A stronger economy is no doubt allowing firms to move their prices higher, but we are also seeing the impact on inflation from the recent weakness of the Australian dollar.

"This is likely to cause the Reserve Bank some concern, and is a fundamental factor why we are likely to see a series of interest rate rises during 2014," he added.

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