Regional business confidence down, report shows

Confidence among WA’s regional businesses has dampened, with a 26-point drop in short-term optimism, CCIWA’s first Regional Pulse report for 2022 shows.

Only 43 per cent of regional businesses expect the economy to improve in the next three months compared to 69 per cent last quarter.

The quarterly report, released today, shows that many businesses revised down their outlook from ‘upbeat’ to ‘neutral’, with expectations of unchanged conditions more than doubling to 36 per cent. Pessimism increased by seven points, with one in five (21 per cent) regional businesses expecting a weaker economy over the next three months.

Looking ahead over the next 12 months, 39 per cent of respondents said they expected stronger conditions, remaining brighter than the outlook of metro businesses (27 per cent).

The impact of worker shortages (cited by 84 per cent of respondents), rising costs (75 per cent) and supply chain disruptions (67 per cent) has grown more severe for nearly every region.

“As forecast by CCIWA, these challenges have been heightened by the presence of COVID-19 in WA, but are expected to ease in the medium term, along with COVID-19 restrictions and the State border,” CCIWA Chief Economist Aaron Morey said.

“They do underline, however, that international skilled migration will be critical in resolving skills shortages.”

The short-term outlook

  1. Businesses in the Wheatbelt and Pilbara (57 per cent each) are most optimistic, with the majority expecting conditions to improve.
  2. Geopolitical factors may have lifted confidence in the Wheatbelt this quarter, with the Russo-Ukrainian conflict constraining global supply of wheat, thereby opening opportunities for Australian producers to step in. Despite supply chain bottlenecks and rising fertiliser prices, WA’s largest grain growing cooperative CBH is set to invest nearly $1 billion in new infrastructure and upgrades to improve crop transportation.
  3. For businesses in the Pilbara, elevated confidence levels reflect persistent strength in the resources sector. Prices for commodities such as LNG and nickel have skyrocketed amid the Russo-Ukrainian conflict, the iron ore price has held firm, and battery materials such as lithium have enjoyed ongoing price increases on the back of increasing demand for electric vehicles.
  4. Businesses in the Great Southern and Mid-West/Gascoyne are comparatively less optimistic about the next three months. Less than one out of five (18 per cent) businesses in the Great Southern and 25 per cent in the Mid-West/Gascoyne are expecting stronger conditions over the next three months; the rest expect no change or a worsening in conditions — this lack of confidence may well be exacerbated by the lack of backpackers and COVID-19 isolation requirements.

READ MORE: Read the full Regional Pulse report here.

Tensions, costs and broken chains

Three out of 10 (29 per cent) businesses in the Wheatbelt identified international trade tensions as a barrier to growth over the coming year — up 11 percentage points since last quarter. This primarily reflects increased pessimism around supply chain disruptions and ongoing disputes with our largest trading partner.

Further, three-quarters (75 per cent) of regional businesses identified rising operating costs as a barrier to growth, including nearly nine out of ten (86 per cent) in the Wheatbelt and 82 per cent in the Great Southern. Businesses in the agriculture, manufacturing and resources industries have reported rising material and equipment costs in recent months.

Supply chain disruptions have intensified, with two-thirds (67 per cent) of regional businesses reporting it as a barrier to growth in the coming year. That includes nearly nine out of 10 (86 per cent) businesses in the Wheatbelt and four out of five (79 per cent) in the Goldfields-Esperance region.

All up, four out of five (82 per cent) regional businesses have been affected by supply chain disruptions.

Higher costs were the most cited impact, identified by nearly four out of five (76 per cent) regional businesses — up 13 percentage points from last quarter. That includes nearly nine out of 10 (86 per cent) businesses in the Wheatbelt.

Businesses also indicated that they are experiencing:

  • Delayed deliveries of input materials (62 per cent), including more than four out of five (86 per cent) in the Wheatbelt.
  • Shortages in input materials (51 per cent), with those in the Wheatbelt (71 per cent) and Great Southern (60 per cent) most acutely affected.
  • Delayed deliveries of end products to customers (44 per cent), including nearly two thirds (64 per cent) in the Goldfields-Esperance region.
  • Missed opportunities to bid for new work (21 per cent), including half (50 per cent) of those in the Wheatbelt.
  • An inability to meet existing contracts (21 per cent), which was most reported in the Wheatbelt (43 per cent) and the Goldfields-Esperance regions (21 percent).

Skills shortages

As CCIWA has been pointing out for many months, the skills shortage caused by the State’s past border shutdowns continues to be a major impediment to the productivity of WA businesses. More than four out of five (84 per cent) regional businesses identified skills shortages as a barrier to growing their business over the coming year, compared with 77 per cent in the Perth and Peel regions.

Concerns around skills shortages were most acute in the Pilbara (93 per cent), Mid-West/Gascoyne (92 per cent) and Great Southern (91 per cent). Businesses in these regions continue to face difficulty attracting both seasonal and skilled workers — particularly those that rely on international and interstate migration. COVID-19 isolation requirements are creating additional challenges for businesses looking to fill rosters.

As a result, nearly three quarters (72 per cent) of WA regional businesses are anticipating labour costs to increase over the next three months — up three percentage points from last quarter — while 17 per cent expect no change. Just one per cent expect wage pressures to ease over the coming quarter.

Businesses that expect labour costs to rise are more likely to operate in the Goldfields-Esperance (93 per cent), Pilbara (88 per cent) and Great Southern (73 per cent) regions. They are also most likely to be boosting their employees’ base wages in response.

Employment

Internet-advertised job vacancies in WA increased 3.4 per cent in March and 18.8 per cent over the past 12 months. The figure now stands 88.7 per cent higher than where it was before the pandemic and the overall level of job vacancies in WA has eclipsed that seen during the last mining boom.

However, WA’s hard border measures — in place through much of the March quarter — have made it harder for businesses to access the overseas labour market and meet rising skilled labour demand. The upshot of this is that skills shortages continue to pervade WA’s regional economy. While the opening of WA’s borders in early March will help to relieve some of these shortages, it is not likely to be a quick fix and tightness in WA’s jobs market is expected to remain for some time.

Nearly half (48 per cent) of regional businesses boosted their staff levels over the past three months, while around 39 per cent recorded no change to their workforce. Businesses in the Wheatbelt (69 per cent) recorded the strongest rise in employment levels over the quarter.

Looking ahead to the next three months, hiring intentions remain solid — particularly among businesses located in the Goldfields-Esperance (57 per cent), Pilbara (41 per cent) and Great Southern (40 per cent)  regions.

For more economic analysis see CCIWA’s Economic Insight page.

For general employee advice and guidance, contact CCIWA’s Employee Relations Advice Centre on (08) 9365 7660 or email advice@cciwa.com.

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