Company directors worried about recession: AICD survey

Company directors are worried about a recession, particularly in Victoria where there’s been a sharp rise in the number who believe the state government ‘doesn’t understand business’.

The AICD director sentiment survey finds that 73 per cent of Victoria’s directors assessed the state’s current business conditions as being weak.

Company directors are reporting a “dramatic slide in confidence” about the economy and in business conditions, with directors in Victoria having a bleak outlook on the state’s economic future, ­according to the latest survey by the Australian Institute of Company Directors.

The latest AICD director sentiment survey shows the sentiment of company directors has plunged to its lowest level since the pandemic, with almost half of them expecting a recession in the next 12 months.

Company directors in Victoria are particularly worried, with a sharp jump in the number of ­directors believing that the state government “doesn’t understand business”.

The report paints a particularly depressing outlook for Victoria, where 75 per cent of directors expect the state to have weak business conditions in the next 12 months, with director sentiment in the state far more concerned about the economic outlook than in any other part of the nation.

It says 73 per cent of Victoria’s directors assessed the state’s current business conditions as being weak – a significant increase from the first half of the year.

Three quarters of those surveyed in Victoria also said they felt the state government did not understand business, with the same number saying they did not trust the state government.

Releasing the survey, AICD chief executive Mark Rigotti said director sentiment in Australia had shown a significant drop in the past six months, plunging by more than 14 points to minus 33.6 in the second half of the year, ­driven by concerns about domestic economic conditions.

“It’s clear that cost-of-living pressures, inflation and high interest rates are continuing to take a toll on businesses, their clients and their staff,” he said.

AICD chief executive Mark Rigotti said director sentiment in Australia had shown a significant drop in the past six months. Picture: Aaron Francis / The Australian

“The number of directors who believe a recession is likely within the next 12 months has jumped to 46 per cent, up from 31 per cent in the last survey six months ago.”

Mr Rigotti said the sentiment index had continued to fall since the second half of 2021, with the half-yearly index in negative ­territory for a fifth consecutive time. But he said the sharp decline in sentiment in Victoria stood out from the other results of the survey.

He said directors in Victoria were far more concerned about the economic outlook for their state, and had far less trust in their state government than ­directors in any other state.

He said Queensland was the state where there was the second largest lack of trust in the state government (66 per cent, compared to 75 per cent in Victoria), but he said the survey was taken before the recent election that resulted in a change of government from the ALP to the Liberal National Party.

In contrast, there had been a significant increase in director trust in the NSW government over the half, with directors’ trust in government moving out of negative territory for the first time since the first half of 2022.

The reports show that there has been a significant drop in ­director sentiment nationally about the economic outlook for Australia and all major global economies, down from -1 to -28.

There was also increasing concern about business conditions, with director sentiment dropping by 32 points to -37.

Directors said the top three economic challenges facing Australian businesses were the cost of living, followed closely by inflation and high interest rates, with productivity ranking third.

Mr Rigotti said more than 56 per cent of directors believed the Reserve Bank’s current interest rate settings would lead to a “major uptick” in business insolvencies.

He said concerns about the economy had risen to have equal ranking with worries about cybercrime as the main issue keeping directors awake at night.

He said there was also increasing concern by directors about the burden of legal and regulatory compliance.

Mr Rigotti said it was clear that the regulatory burden continued to be a major issue for ­directors.

“This becomes even more pronounced when businesses and their boards are forced to turn their attention to the daily challenges arising from the weaker economy and deteriorating business conditions,” he said.

The survey showed that 61 per cent of directors believed compliance and regulation was the main factor affecting their board’s appetite for risk.

Directors see housing continuing as a top priority for infrastructure investment, with 43 per cent seeing the availability of affordable housing as the main way to address the housing crisis.

Perceptions of state and federal governments are largely seen as negative across the county with the exception of directors in Western Australia and South Australia.

A clear majority – 61 per cent of directors – believed that ­Kamala Harris would have been better for the US economy if she had been elected as president, with 70 per cent believing a ­Harris presidency would have been better for Australia-US ­relations.

Originally published as Company directors worried about recession: AICD survey