Rising costs hitting profits hard

Rising costs are eviscerating the profits of WA SMEs: that’s the headline finding from today’s CCIWA Business Confidence Survey.

The June quarter survey found that profits are the lowest they’ve been since the start of the pandemic, with businesses passing through an average of just under half of their increased costs to consumers.

A big part of the cost story is wages. The report highlights that more than four out of five business are struggling to hire workers, with boosting base wages the most common response.

Supply chain disruptions and inflationary pressures are continuing to feed into higher operating costs, with three quarters (76 per cent) of businesses experiencing higher material costs over the quarter, and 73 per cent facing higher labour costs. This is leading to the marked deterioration in business profitability, with CCIWA’s profitability index at its lowest level since the beginning of the pandemic.

LEARN MORE: Access the Business Confidence Survey Report 

The report also identifies how businesses are looking to change their international business strategy as a result of supply chain disruptions and geo-political tensions. Businesses changing strategy are most likely to be identifying alternative supply chains and diversifying import markets.

Those businesses most likely to be diversifying their import markets operate in the agriculture (36 per cent), manufacturing (17 per cent) and construction (17 per cent) sectors.

Other areas being revisited include increasing the onshoring of business operations (11 per cent) and bringing parts of the supply chain ‘in house’ (10 per cent). This is largely driven by the manufacturing sector, with one in five (20 per cent) businesses in this sector looking to increase onshoring of business operations and one quarter (24 per cent) looking to bring parts of the supply chain in house.

Overall, WA business confidence has edged up over the June quarter, underpinned primarily by the removal of WA’s COVID-19 restrictions and hard border controls.

While confidence has improved, however, it remains well below survey highs recorded across 2021, as businesses continue to grapple with the issues referred to above.

Just under half (45 per cent) of businesses believe conditions will improve over the next three months, up eight percentage points since last quarter. About one-quarter (24 per cent) anticipate weaker conditions, and the remaining 31 per cent anticipate no change – down five percentage points.

The 12-month outlook has increased marginally after suffering a large fall in the March quarter. Three out of ten (29 per cent) businesses expect the WA economy to improve over the year ahead — the same as last quarter.

About two out of five (38 per cent) anticipate no change over the next twelve months, while 33 per cent believe conditions will deteriorate, down two percentage points since March.

For the latest economic reports see CCIWA’s Economic Insight page.

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