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Date with recession not what embattled sectors had in mind

Survey finds industries outside mining are feeling the pain.

Survey finds industries outside mining are feeling the pain.

IF THERE was any doubt that a big chunk of the Australian economy outside the mining industry is flirting with recession, then the latest Dun & Bradstreet survey on business expectations for the September quarter confirms it.

Dun & Bradstreet's survey, released yesterday, warns that business expectations are at levels seen just before the worst of the global financial crisis. It comes at a time when business is grappling with the introduction of new imposts, including a carbon tax and, in the case of iron ore and coal companies, a new resources rent tax.

The survey of executives warns that anticipated interest rate rises, largely in response to the strength of the mining sector, are putting pressure on the already embattled retail and manufacturing sectors. The high dollar certainly isn't helping the situation.

It is not a good start to the new financial year and comes as the Reserve Bank met to discuss interest rates. The RBA yesterday left the cash rate at 4.75 per cent for the eighth straight month and strongly suggested that growth through 2011 was now unlikely to be as strong as earlier forecast. What a surprise not.

With retail numbers falling 0.6 per cent in May and building approvals falling by 7.8 per cent, and with major challenges in Europe and the US, the RBA altered its phrasing about whether the recent global weakness is temporary or a new trend.

As Craig James from CommSec said: "The Reserve Bank finally gets it. While the bank continues to note the positive broader benefits to the economy of the 'terms of trade' boom, it realises that people can't see the gains. For instance, our trade surplus with China has increased by over $14 billion over the past year or around $650 for every man, women and child. Now, if those dollars were actually paid out, it may be different. But the increased profits for miners boost share prices and dividends and are reflected in the average worker's compulsory superannuation. Unfortunately for many people, they won't see those gains for 30 years."

Not surprisingly, interest rates remain the key area of influence on business, with three quarters of executives surveyed saying they will avoid accessing credit in the coming quarter as they wait for the RBA to make a move on rates. Indeed, 17 per cent of firms believe access to credit will be the most important business influence in the quarter ahead down 2 per cent since last month.

But the chances of a rate rise any time soon are slim, despite the rhetoric. The reality is with negative economic growth reported last quarter, mainly due to the impact of the Queensland floods, the last thing the RBA will want is to lift interest rates at a time when another negative quarter of economic growth cannot be ruled out.

Dun & Bradstreet's survey is grim. The outlook for the next quarter does not instil confidence. Business expectations for sales, profit, capital investment and employment are all down. According to the survey, profit and employment expectations have fallen into negative territory for the first time in two years and sales expectations also hit two-year lows.

In the case of capital investment, the expectation is the worst it has been for the past 10 years, while sales expectations are down four points to an index of 10, the lowest of the past eight quarters and three points below the 10-year average index of 13.

There is no doubt that business is hurting.

adele.ferguson@fairfaxmedia.com.au


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