On the surface, Australian CEOs are becoming more optimistic. But behind that optimism are some deep concerns and a major gamble.
In the latest quarterly CEO Pulse survey, Australian CEOs have slashed their capital spending forecasts, which is an ominous sign.
Almost two years ago 64 per cent of Australian CEOs, as measured by the survey, planned to increase capital expenditure. That figure plummeted in the next three quarters to the point where in the fourth quarter of 2011 only 41 per cent of companies in the survey planned an increase in capital expenditure – a fall of one third in three quarters.
But then capex started to rise so in the third quarter of 2012 some 46 per cent of companies were planning a capex increase. Three months later, in the latest Pulse survey, only 34 per cent plan to lift capital spending. However, for the most part our CEOs are not slashing spending but will simply hold it steady.
That change in capital spending direction reflects an underlying nervousness. And the reason for that nervousness is that it's getting harder and harder to lift profits. Back in the first quarter of 2011, 73 per cent of companies expected to lift profits. In the latest quarter those expecting profit rises are down to 48 per cent. That is not a catastrophic figure but it is worth noting that just six months ago 64 per cent of companies expected higher profits.
That change in the outlook for profits is particularly severe in some of the big miners, where lower mineral prices and a higher dollar have affected results. Lower mining profits have slashed government revenues and made it virtually impossible to achieve a surplus without drastic measures on the expenditure side.
My anecdotal evidence is that smaller enterprises are doing it really tough. Our survey does not cover this area of economic activity.
There is no doubt that a large number of Australian companies are being hurt by the high dollar.
But what really disturbed me about the survey was that those expecting rises in operating expenditure rose from 33 to 49 per cent and those expecting a decrease in operating costs slumped from 37 to 29 per cent.
Yet the companies in the survey are urging Prime Minister Gillard to lift national productivity. That drive should start with the CEOs.
In essence Australian business is betting that the lower interest rates are going to drive economic activity and that they can manage with higher costs.
The CEOs are taking a big punt. I hope Australian business is right.
Research design and analysis for the CEO Pulse survey was conducted by GA Research and fieldwork by AFS. The sample comprised 85 CEOs of organisations with an Australian turnover of $100 million or more who opted to participate in a five minute survey conducted over the phone or online between Monday 26 November, 2012 and Sunday 9 December, 2012.