Mood swing signals recovery for some

A MARKET mood swing emerging from the depths of winter is positive as Australian businesses look towards new growth.

Taking the pulse of small and medium-sized companies between July 29 and August 3 2009, KPMG’s quarterly Mood of the Market Survey, found that 39 per cent of companies expect economic activity to remain steady. Of the remainder, twice as many expect the economy to expand rather than contract.

National managing partner of KPMG’s Middle Market Advisor practice Graeme Matthews, says the Federal Government’s stimulus package has been well regarded by respondents – an opinion that has come 360 degrees since its inception.

“In December, businesses were screaming out for additional fiscal stimulus, but in the April survey almost two-thirds felt the stimulus package would have little impact,” says Matthews.

“It is interesting now that 62 percent of businesses, with an air of optimism, believe the government's stimulus injections have slowed the recessionary impact in Australia.”

Forecast interest rates are another clear indicator of emerging market optimism.

“No one expects interest rates will decrease any further,” says Matthews.

“Three months ago, 82 per cent of businesses predicted a further lowering of interest rates, the staggering difference in this quarter’s survey really highlights the perception that the economy is picking up.”

Despite the official interest rates being at historically low levels, only 3 per cent of businesses surveyed, reported to have experienced lower interest rates. The latest survey favours the Gold Coast – the SME capital of Australia.

“I won’t say that we are out of the doldrums just yet, but for small to medium Australian businesses, the outlook is good,” he says.

“The changing market conditions are offering businesses opportunities – 49 per cent plan to increase market share through the weakening of competition, 20 per cent will look to acquire assets from underperforming companies and 14 per cent are investigating taking over one of their competitors.”

Business growth and cash flow generation are the key focuses for the coming year, but surprisingly only 3 per cent stated that raising capital is a high priority.

“The outlook for the unemployed is set to pick up with 18 per cent of companies increasing employment over the past three months, and 25 per cent of companies surveyed still experiencing a skills shortage, despite increased unemployment levels,” concludes Matthews.

“Businesses are now looking at a shimmering light at the end of the tunnel, and contemplating strategies to make it burn a little brighter.”

But for some retailers, conditions are to remain sluggish. Economic forecaster BIS Shrapnel, says the strong bounce-back in consumer sentiment, surprisingly robust retail turnover data and the upgrading of profit guidance by large retailers does not reflect what’s in store for the year ahead.

BIS Shrapnel’s Retail Property Market, 2009 – 2019 report, highlights a dramatic turnaround in household disposable income, from the strongest level in over 20 years in 2008-09 to a negative result this financial year. The report also forecasts shopping centre incomes will fall as weaker disposable income drags down consumer spending.

“Government hand-outs, the positive March quarter GDP figure and the bounce-back in the sharemarket have been behind the positive news, but as unemployment continues to rise throughout the rest of this year and next, we expect consumers to rein in their spending,” says BIS Shrapnel senior project manager, Maria Lee.

“Last year consumers didn’t spend for fear of unemployment. This year they haven’t got money to spend and, in fact, we think consumers will borrow to shore up spending.”

BIS Shrapnel is forecasting just 0.1 per cent real growth in retail turnover in 2009-10. While food retailing will remain solid, the forecaster expects all other categories of retail to suffer falling turnover this year.

BIS Shrapnel says it will now become a challenge to maintain shopping centre income growth in the light of the weaker economic environment, higher shopping centre vacancies and increased financial assistance to tenants.

The report also shows another threat to shopping centre incomes waiting in the wings – the Australian dollar. Increases in the Australian dollar and the associated cost reductions underwrote strong rises in profit margins from around three per cent at the start of the decade to over four per cent currently. This, even more than strong growth in retail sales, is what drove strong rises in retailers’ profitability.