Australia’s mid-market businesses are experiencing a sharp increase in confidence and renewed optimism around future performance, according to the Commonwealth Bank Future Business Index.
The index reveals confidence reached the highest level since the survey began in September 2011, with a reading of 17 in the December quarter, up from 10.8 in the September quarter.
Mid-market businesses also anticipate a more positive year ahead, with 77 per cent of organisations expecting a better performance in 2014 when compared with 2013. In addition, the index reveals 47 per cent of businesses expect conditions to improve over the next six months, the highest reading since the March quarter 2013 and an increase of 11 per cent from the September quarter.
Key factors buoying confidence among mid-market businesses are expectations over the next six months of a significant increase in revenue (index increased to 41 in the December quarter from 25 in the September quarter), strong profit forecasts (index increased to 27 in the December quarter from 15 in the September quarter), and a continued reduction in operating costs (index decreased to 29 in the December quarter from 33 in the September quarter).
Executive general manager corporate financial services at the Commonwealth Bank Michael Cant said: “There has been a marked improvement in confidence across the mid-market and the vast majority of businesses are anticipating a more prosperous year ahead.
“The performance of the transport and logistics industry is typically representative of broader economic conditions, so it is encouraging to see a dramatic increase in confidence among these businesses.
“Optimism across all businesses is being driven by a number of factors, most notably stronger revenue and profit expectations. Notwithstanding the buoyant sentiment across the mid-market, there remains a level of conservatism as businesses continue to focus on managing costs,” Mr Cant said.
The index shows the top three domestic challenges facing mid-market businesses in the next year are weak consumer confidence, a falling Australian dollar and uncertainty about government policy decisions. The index also reveals growing concerns about labour skills shortages, with 41 per cent of businesses indicating a negative impact over the next six months, up from 30 per cent in the September quarter.
Commonwealth Bank chief economist Michael Blythe said: “The sharp improvement in revenue and profit expectations is quite encouraging and we’re seeing this improved sentiment flow through to other important areas, such as an enhanced appetite for risk and an expected increase in capital expenditure and headcount.
“Progress has also been made in relation to the key challenges facing mid-market businesses. Consumer confidence has lifted from its lows in 2003, fiscal policy is moving in an expansionary direction and the Australian dollar is lower,” Mr Blythe said.
Industry analysis
The transport and logistics industry experienced the biggest comparative increase in confidence, with the index jumping from -8.4 in the September quarter to 38.7 in the December quarter. The industry also recorded the highest level of preparedness for future conditions, with 57 per cent of businesses feeling well prepared.
After experiencing the largest jump in the September quarter, the information technology, media and telecommunications industry witnessed the biggest drop of all industries in the December quarter, down 19.5 from the September quarter to 10.7.
New South Wales claims top spot as confidence surges
New South Wales took the mantle as the most confident state, witnessing a significant increase in confidence over the quarter with a reading of 23.5. In addition, 79 per cent of businesses in the state forecast a better performance in 2014 when compared with actual performance in 2013.
Confidence in Western Australia also lifted over the past quarter, to make it the second most confident state. It is also the most prepared state, with 47 per cent of businesses indicating they are well equipped to face future business conditions.
The index is based on a survey of financial decision makers in public and private companies throughout Australia with a turnover of between $10m-$100m. The index is calculated through the net balance of future business conditions, revenue, and how prepared businesses are to meet future challenges.
For a full copy of the report visit www.commbank.com.au/futurebusinessindex