Survey shows rising costs hampering Victorian business growth but sales and exports expected to lift

23 July 2015

Rising employment costs hampered business trading performance over the June quarter

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Wages growth was a driver of this rise, as it remained widespread in the June quarter 2015 with a net balance of 18 per cent of respondents reporting an increase. Wages growth is forecast to accelerate in the September quarter 2015, with a net balance of 30 per cent of respondents expecting a rise.

With little change in selling prices and higher operating costs, business profitability was under pressure with a visible weakening in profits over the quarter. A net balance of 18 per cent of businesses reported declines; a 10 percentage point deterioration compared to the previous quarter’s result.

Not surprisingly, the quarterly survey of nearly 500 businesses across seven major industry sectors also found that employment levels were adversely affected by the general weakness in profits and rising cost pressures. Over the June quarter, a net balance of six per cent of surveyed firms reported a decline in employment.

Exports, which had performed strongly in the previous quarter, eased in the current quarter; as did trends in buildings and structures investment. Encouragingly, a rebound in export activity is forecast over the next three months.

Sales, which were relatively flat during the June quarter, are also expected to recover over coming months.

“Cost pressures are an increasing headwind to Victorian business growth,” said Victorian Chamber Chief Executive Mark Stone.

“More must be done to reduce the employment cost burden on business by lifting the payroll tax threshold, reducing WorkCover premiums and reforming penalty rate structures.”

Bank of Melbourne Chief Executive Scott Tanner said, “While businesses are still uncertain about conditions in the Victorian economy, there were some encouraging signs for the outlook with confidence emerging.”

“Stronger household and business balance sheets, coupled with low interest rates and a weaker Australian dollar, should put growth and investment plans back on the agenda for businesses when the right opportunities arise.”

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