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Australian businesses are growing increasingly concerned about the future economic growth of the country, according to a recent survey.
The Roy Morgan Business Confidence revealed that almost 50 per cent (46.4 per cent) of businesses feel they are “worse off” financially in June 2023, compared to the same time last year (up 1.4 points).
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This figure represents the highest proportion of businesses feeling worse off since October 2020.
These concerns come in light of rising interest rates implemented by the Reserve Bank of Australia (RBA), with the cash rate held steady at 4.1 per cent.
The business index dropped to 88.8 in June, marking the lowest reading in nearly three years since September 2020, reflecting a decline of 1.5 points since May.
Business confidence has now remained below the neutral level of 100 for five consecutive months, the longest stretch in negative territory since October 2020, during the initial year of the COVID-19 pandemic.
Chief executive of Roy Morgan, Michele Levine, said the real concern businesses have is about the fortunes of the Australian economy going forward.
“Over three-fifths of businesses expect ‘bad times’ for the Australian economy over the next year, 62.2 per cent, and over the next five years, 61.6 per cent,” Ms Levine said.
Despite concerns about the overall economy, businesses remain positive about their own prospects in the coming year, with around 41.1 per cent (up 0.9 points) of businesses expecting to be financially “better off” in the next year, while 25.7 per cent (up 0.6 points) anticipate being “worse off” in the future.
Business confidence strong out west
Regionally, business confidence remains strong in Western Australia, with a reading of 141.1 in June, up 42.3 points compared to the previous year.
The state’s mining industry, has benefited from high commodity prices, particularly iron ore and gas, outperforming other sectors in recent years, Ms Levine said.
In contrast, business confidence in other states remains weak, with NSW (87.9), Queensland (86.1), Tasmania (79.6), South Australia (79.2), and Victoria (74.5) all reporting figures below the national average. Victoria, in particular, has experienced its lowest business confidence level during the first six months of 2023 (averaging 83.0), even lower than any of the pandemic years from 2020 to 2022.
Business credit expectations fall
As such, given the low business confidence, the ANZ-Property Council Economic Insights report for July indicates a downward trend in business credit expectations, with growing anticipation that business credit growth will continue to weaken into 2024.
Senior economist Adelaide Timbrell attributed this trend to factors such as low sentiment, declining commercial property confidence, higher peak unemployment, and persistently high building costs.
However, she expected housing credit to increase in 2023, on the back of strong house price growth and demand from internal migration. Although, this increase could be watered down by interest rate hikes slowing growth into 2024.
Further, coinciding recent data has also indicated a weakening trend in investment lending due to lower returns on investments in the higher interest rate environment.
“Higher interest payments as a result of higher interest rates will also reduce household capacity for excess mortgage payments,” Ms Timbrell said.
“Some factors will also act to limit growth in housing lending, including limited housing transactions and continued sluggishness in the increase in housing supply.”
However, the forecast for lower interest rates by the end of 2024 and into 2025, coupled with a modest increase in GDP growth, supports the expectation of a boost in both business and housing credit in the long term.
[Related: Less favourable conditions drag rental investments down: Report]
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