Business confidence among Australia’s largest firms dropped significantly – from a position of above average confidence relative to the broader economy to marginally below. Businesses are reacting to the subdued domestic demand outlook and the increased uncertainty that followed the Commonwealth Budget in May (the collapse in consumer confidence demonstrates this sentiment even more starkly). Conditions amongst ASX 300 weakened marginally but remained at relatively high levels – especially relative to the broader economic conditions. Trading conditions and profitability remain at very strong levels but – possibly reflecting weaker confidence – employment fell significantly. Capex declined as business investment dipped into negative territory for larger firms. However, firms overall plan to invest more in the coming twelve months.

• In sync with the broader economy, business confidence for ASX 300 edged down. For larger firms, confidence deteriorated sharply from +11 points in the March quarter to a final reading of +3 points. Confidence in the broader economy (as in the QBS) dipped to +4 points (from +9 previously).
• Business conditions also weakened for ASX 300, but they remain at strong levels, decelerating to +9 (from +12 previously). In contrast business conditions for QBS were unchanged at -1 points.
• Trading conditions and profitability remain at high levels but were not translated into better labour market outcomes – with employment in large firms falling 6 points to -4 index points. Weak labour market outcomes are expected to continue with little improvement in business conditions expected over the coming year.
• Recent proposed tax and public expenditure changes in the May Federal Budget have raised concerns, adding onto the constraints on profitability, in an environment where sales margins continued to narrow.
• Capital expenditure dipped back into negative territory for ASX 300, with mining and recreational services contributing largely. Capex for the broader economy ticked upwards.
• Firms benefited from easing inflationary cost pressures and increased forward orders – but are passing savings on to consumers, with the final product price edging marginally downwards. Stock levels are stabilising.

For further analysis download the full report.

• ASX 300 Quarterly Business Survey – June 2014 (PDF, 198KB)