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CEO Confidence Index, June Quarter 2019: Economic outlook deteriorates

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RESEARCH

The June Quarter 2019 survey was conducted between 27 March and 12 April 2019 and provides insight into the challenges and opportunities businesses are facing in the next quarter and year ahead.

Key Findings

  • For the first time in two years, the CEO Confidence Index has fallen below the positive/negative 100 level to 97
  • Ahead of the Federal Election, more than 50 per cent of CEOs are concerned policy changes will negatively impact business performance
  • Indicators of own business conditions have stayed in positive territory
  • Expectations for sales, profits, investment and staffing remain high

Business leaders’ confidence in the economy has fallen for the third consecutive quarter, reveals The Executive Connection CEO Confidence Index, June Quarter 2019.

The CEO Confidence Index fell 15 points in the June Quarter to 97, falling below the positive/negative 100 level for the first time in two years. Expectations of the economy for the year ahead fell 16 points to 80 and economic performance compared to a year ago fell 35 points to 81.

Warren Hogan TEC economist

Warren Hogan, Chief Economic Advisor at The Executive Connection and Industry Professor at the UTS Business School says the findings reflective a genuine concern in the business community.

“While the cause of some uncertainty can be attributed to the upcoming Federal Election and a possible change in government, CEOs and business owners are also likely to be concerned about falling property prices, soft consumer spending and the state of the global economy,” says Mr Hogan."

Budget boost for business confidence

Approximately 30 per cent of respondents to The Executive Connection CEO Confidence Index completed the survey prior to the Federal Budget on 2 April, providing insight into to the impact of the Budget on business confidence. (See Data Appendix Table 1).

The results of this analysis show a sharp jump in business confidence and views on the economy following the release of the Federal Government’s Budget. Click To Tweet

The CEO Confidence Index recorded prior to the Budget was 90 which is in sharp contrast to the index level post Budget of 100.

Views on the strength of the economy compared to a year ago jumped from a pre-budget level of 62 to a post Budget level of 88, an improvement that has been sustained right through to the close of survey responses on 12 April. Big shifts in confidence through the survey period are unusual.

Download the report to view the full survey results

“While confidence in the economy remains fragile across the SME sector, our analysis shows a boost to business leaders’ perceptions of the health of the economy from the Federal Budget. Measures to bolster demand in the economy, including personal income tax cuts and increases to the instant asset write-off threshold, appear to have hit the mark.

“Following months of bad news on the economy and the relentless flow of negativity around housing markets, the Budget has been a timely reminder of the broader health of the Australian economy, including strong international trading conditions and low unemployment. In addition, the rapid improvement in government finances highlights the capacity for government to respond to adverse economic events, should they arise,” adds Mr Hogan.

The engine room of the economy defies the gloom

Despite concerns about the economic outlook, leaders and CEOs remain optimistic about their own business prospects. Most measures of own business activity stabilised in the first quarter of 2019 and all measures remain at net-positive levels.

Expectations for sales revenue and profitability remain strong with over 65 per cent of business leaders expecting to see higher revenues over the year ahead. Profitability jumped 5 points in the quarter to an index reading of 149, the first rise since mid-2018.

At the same time, over 90 per cent of CEOs expect to either maintain or increase investment expenditures this year, and 50 per cent are expecting to increase staff levels.

To support this expected growth, the majority of CEOs have set their sights on incremental innovation and driving operational efficiencies to spur business performance in the next 12 months.

“Despite weakening confidence in the economy, Australian CEOs remain optimistic about their business prospects. There are no signs that the lack of economic optimism will result in a reduction of investment into business or have a meaningful impact on business behaviour,” says Stephanie Christopher, CEO, The Executive Connection.”

Business leaders will be watching the upcoming election closely

In the lead up to the Federal Election, business leaders were asked if any of the policy proposals from the major parties would negatively impact on their business.

“I think parts of the construction industry are going to be really impacted by the results of this Federal Election and I’m predicting a further downturn in the property market. However, from a broader economic perspective, even though there is so much resting on this election, there are some great projects happening to support growth, such as committed investment into building more infrastructure.” Tim Bird Managing Director, Paramount Safety Products

More than 50 per cent of CEOs cited policies of concern, just under 20 per cent were unsure and the remainder didn’t think policy proposals from the major parties would adversely affect their business.

The majority of concern was attributed to the Labor Party proposals related to negative gearing and capital gains tax reforms, and policies impacting industrial relations including adjustments to minimum wages.

“Our analysis indicates that businesses are mostly concerned about the impact of new policies on economic activity, rather than the direct implications for their own business operations. This will add to the typical pre-election uncertainty across the economy and may dampen economic activity over the next six weeks,” concludes Mr Hogan.

View full report

About the CEO Confidence Index

The Executive Connection CEO Confidence Index is a quarterly survey measuring the economic outlook and sentiment of Australian business leaders of Mid-market organisations. The survey measures the following indexes:

  • Views about economic conditions compared to a year ago
  • Expectations for economic conditions in the year ahead
  • Business expectations for the next 12 months on:
    − Fixed capital expenditure
    − Sales revenues
    − Profitability
    − Prices for their products and services
    − Total headcount

The survey also identifies the challenges and opportunities faced by leaders including business operations, leadership, talent and technology.  Members are CEOs and business leaders of businesses with up to 200 employees and annual revenue of between $2 million and $100+ million per year. The results provide insight into the challenges and opportunities faced by leaders and their confidence in the Australian business environment as well as insights into key issues such as political leadership, access to funding and market conditions.

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