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Latest figures suggest business confidence on the rise

By Geoff Scofield, Westlawn Finance MD & CEO
27 April 2015

Back in February, I wrote about the signs suggesting we are on the right track in terms of improving business conditions and confidence in What does 2015 hold for small business?

Two months later, and there are further positive signs we’re now heading in the right direction.

According to the latest NAB Monthly Business Survey, there are some “tentative signs of improvement” with business conditions recording “a notable lift, with each component (trading, profit, employment) posting an improvement”. Similarly, the latest Deloitte survey of chief financial officers reveals CFOs at the top end of town are now more optimistic about the prospects of their companies.

And from the ABS, we have news that businesses are now beginning to borrow more.

Business confidence up in March

The latest NAB Monthly Business Survey reveals Australian business sentiment and conditions improved during March. The survey of 400 companies across most sectors, reported a 3-point improvement in confidence (to 3 index points) and a 4-point lift in conditions (to 6 index points). Businesses reported improvements in both trading and profitability, while also reporting a small improvement in employment.

NAB chief economist, Alan Oster, attributed the improvement to the Reserve Bank’s latest interest rate cuts, but cautioned that overheating property markets could stymie further easing.

“Low interest rates are continuing to have a notable impact on the particularly sensitive sectors of the economy, like investor housing, but pass-through to the broader economy has been somewhat limited,” Oster explained.

The NAB chief economist added that: “… business credit growth has improved in recent months and ABS data on retail sales are suggesting that consumer spending may be a little better than expected.

“The consumer remains cautious but recent retail sales have been more encouraging.”

Confidence rising at top end of town

At the top end of town, those controlling the purse strings (chief financial officers) are more optimistic about the prospects of their companies, according to the latest Deloitte CFO survey conducted during the first quarter of 2015.

Taking part in the survey were 52 CFOs representing businesses with a combined market value of around $251 billion.

The survey found that a net 21% of CFOs have a more positive attitude about the prospects of their companies. That compared to a net result of just 6% from the previous quarter.

Deloitte’s Stephen Gustafson said that while CFO optimism hasn’t reached the levels of a year ago, it’s a “very significant improvement on what was a subdued mood for much of 2014”.

“While risk aversion and an overall sense of caution had been recurring themes for much of 2014, net optimism has grown since, from 6% in the fourth quarter of last year to 21% in the first quarter of 2015,” he said.

Gustafson noted that while the lower Australian dollar and interest rate cuts have driven a rise in CFO confidence, concerns remain in regard to federal government policy.

“Policy uncertainty, budget repair, leadership instability and hesitation regarding the reform agenda continue to have an impact on business confidence, and were a negative factor for net 55% of CFOs,” he said.

But this hasn’t overly dampened business confidence, according to Gustafson.

“This again suggests that Australia may have arrived at an economic tipping point where, despite this uncertainty, underlying conditions are positive enough that CFOs are willing to take on risk and invest in growth.”

CFO appetite for risk increases

The survey found 50% of CFOs believe now is a good time to take on risk, up 24% from the previous quarter.

The Aussie dollar’s fall below US80¢, and the cut in interest rates was helping improve confidence among CFOs and 60% expected interest rates to fall further this year.

More than 40% of CFOs felt that declining commodity prices have had a negative impact on optimism, while the impact of a lower dollar was helping companies operating outside mining, oil and gas.

This led to the number of CFOs intending to increase gearing for their company to double in the last quarter, up from a net negative of 17% in the last quarter to a net positive of 15% in the first quarter of 2015.

Business now borrowing more

Echoing the findings of the Deloitte CFO Survey, were figures from the Australian Bureau of Statistics’ (ABS) February Lending Finance Report showing a growing level of confidence with business borrowings on the rise.

Business Spectator reported on 14 April that: “On a trend basis, the value of commercial lending activity, excluding refinancing and cancellations and reductions, rose by 2.5% in February — having increased for the past 4 months – and is now 7.2% higher over the year.”

Refinancing is expected to remain popular in the months ahead, as a result of the February interest rate cut and expectations the RBA will cut rates further over the coming months.

On a trend basis, refinancing rose by 8.7% in February – following an increase of 7.5% the previous month – and should remain elevated in the near-term.

Is your business ready to take advantage of the record low interest rates by refinancing or investing in your business? Contact your Westlawn Business Finance Specialist to discuss your situation.

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