Business confidence in South Australia has dropped sharply

Business confidence has dropped sharply, Business SA says, as mounting costs combine with problems with supply chains and hiring.

Business confidence in South Australia has taken a steep dive, with interest rate increases and high inflation expectations cause for concern, Business SA’s latest Survey of Business Expectations shows.

The Business SA – William Buck Survey of Business Expectations results show that business confidence fell 23.9 points to 74.9 points over the June quarter, after a bounce in the March quarter.

While the impacts of the pandemic are waning for many businesses, the war in Ukraine, which has exacerbated supply chain and cost issues, as well as rapid interest rate increases and inflation, have led to increased uncertainty.

“Most significant impacts include an energy crisis, escalating prices, increasing inflation and disrupted supply chains,’’ the survey report says.

“With prices already high due to existing supply shocks and freight challenges, escalating costs of doing business and negative economic expectations put a significant dampener on business confidence.’’

A huge 96 per cent of businesses surveyed expect official interest rates to increase further in the September quarter and 85 per cent are expecting inflation to rise.

A third of businesses expect the unemployment rate to increase while 56 per cent expect it to stay the same.

Business SA chief executive Andrew Kay said cost increases, labour availability and supply chain issues were the three biggest issues for business operators.

“In terms of cost increases, it is worth highlighting a really varied response across the South Australian business community,’’ Mr Kay said.

“For nearly 40 per cent of businesses, passing on a cost increase to their customers was not even a consideration, despite their pressures.

“For some, regulations and fixed contracts remove the option altogether. However, those that can, need to have the confidence to initiate the increases that can keep their businesses financially viable.

“The tight labour market has been well documented, and this was also reflected in the survey.

“Seventy per cent of businesses found it harder to find workers in the June quarter, up 10.8 percentage points from March.

“While we applaud initiatives like the new independent national agency Jobs and Skills Australia, there is an immediate need to address the labour and skills shortage that cannot be easily resolved.’’

The forward-looking Business Conditions Index remained relatively steady, down 4.2 points to 93.1 where 100 is a neutral value, while the Total Sales/Revenue Index was steady at 98.6.

Mr Kay said with the cash rate sitting at 1.35 per cent after three significant increases in recent months, there was an expectation that consumer demand would start to slow.

“What businesses don’t want to see is an overcorrection,’’ Mr Kay said.

“As they juggle increased costs and price increases, they still need to keep the demand equation alive. It’s a pertinent reminder that supporting local businesses has never been more important.”

On the costs front, 85.9 and 87.6 per cent said the cost of materials and overheads respectively had increased.

“Businesses reported increased energy bills as their main cost pressure, along with increases to wages/contractors,’’ the report says. “This is not surprising, given the increases in electricity and gas prices, as well as a tight labour market. However, most concerning was the fact that only 3 per cent of businesses indicated cost increases were comparable to pre-Covid years.

“Suppliers are also struggling to keep prices down, and continue to receive notifications of price increases and renegotiations.

“The construction sector is of particular concern because of fixed price contracts and higher than costed inputs, including timber, fittings, and steel.’’

Only 19 per cent of businesses were able to fully pass through cost increases.

“Over half (52 per cent) were unable to pass along more than 20 per cent of price increases,’’ the report says.

“As a result, most businesses continue to absorb the cost.’’